China's oil product consumption weakens, with demand pressure concentrated in road transport and the infrastructure chain

Overview

This report focuses on changes in China's oil product consumption. Morgan Stanley believes that China's oil product demand declined markedly in May, with the main pressure coming from road transport and infrastructure-related activity rather than aviation or chemical demand. The double-digit YoY declines in gasoline and diesel demand, contrasted with growth in jet fuel and flat naphtha, point to both cyclical slowing and structural substitution in transport fuel demand occurring at the same time.

Core views

The core view of the report is that the weakness in China's oil product consumption is not a broad-based and even decline, but is instead driven by weaker road transportation, logistics, infrastructure activity, and traditional transport fuel demand. Softer economic activity and slower infrastructure and logistics demand are depressing diesel demand; high oil prices are prompting consumers to shift to electric vehicles and public transportation, further weakening gasoline demand. By contrast, jet fuel rose about 5% YoY and naphtha was basically flat, indicating that air travel and chemical feedstock demand remained relatively stable.

Analysis framework

The report assesses the sources of demand pressure and their implications for the industry chain by tracking China's apparent oil product consumption, implied gasoline and diesel demand, jet fuel and naphtha consumption, fuel inventories, and refinery run rates. The analysis focuses on comparing YoY changes across different oil products and, combined with inventory levels and refinery operating adjustments, identifying whether demand destruction is concentrated in road transport and infrastructure activity.

Methodology notes

• Industry demand trackingOil product consumption breakdown analysis

  Identify the sources of pressure on oil product consumption through changes in segment demand such as gasoline, diesel, jet fuel, and naphtha.

  Gasoline and diesel more directly reflect road transportation, logistics, and infrastructure activity; jet fuel reflects air travel; naphtha reflects chemical feedstock demand. Comparing these segments helps determine whether the decline in oil product consumption is due to cyclical slowing, structural substitution, or broader weakness in end demand.

• Supply-demand balanceInventory and refinery run-rate observation

  Assess supply-demand pressure by combining fuel inventories and refinery run rates.

  The report notes that fuel inventories have remained elevated since the SOH disruption and have not eased meaningfully even though refineries significantly cut run rates, indicating that insufficient end demand is pressuring the industry chain.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Energy & Chemicals sector

  Sector under research coverage

  Strengths

  Jet fuel consumption grew about 5% YoY and naphtha consumption was broadly flat, showing that some end demand remains resilient.

  Weaknesses

  Total oil product consumption fell 13.5% YoY, gasoline and diesel demand weakened significantly, and inventories remain elevated.

  Comparison

  Compared with aviation and chemical demand, fuel demand related to road transport, logistics, and infrastructure is weaker.

  Risks

  Economic activity remains weak, infrastructure and logistics demand recover more slowly than expected, and electric vehicle substitution continues to accelerate.

• Traditional transport fuels

  Main area under pressure

  Strengths

  If oil prices decline or travel demand improves, short-term consumption could see a phased recovery.

  Weaknesses

  High oil prices, public transportation, and electric vehicle substitution are weakening gasoline demand, while diesel demand is affected by slowing logistics and infrastructure activity.

  Comparison

  Performance is weaker than jet fuel and naphtha.

  Risks

  Demand destruction lasts longer than expected, prolonging pressure on refinery run rates and inventories.

• Electric vehicle and public transportation substitution chain

  Creates substitution pressure on traditional oil product demand

  Strengths

  In a high oil price environment, consumers are more likely to switch to electric vehicles and public transportation.

  Weaknesses

  The report does not directly provide earnings or sales forecasts for EV companies.

  Comparison

  Relative to traditional gasoline consumption, EV-led ride-hailing creates structural substitution for oil product demand.

  Risks

  If oil prices fall or policy and usage scenarios change, the pace of substitution may fluctuate.

Key data

• Total oil product consumption in Maydown 13.5% YoYThe report text states that total oil products consumption declined by 13.5% YoY in May.
• Oil product consumption since the SOH disruptiondown about 12% YoYThe report says oil product consumption has fallen about 12% YoY since the SOH disruption.
• Implied gasoline demanddown about 12% YoYThe chart title indicates that China's implied gasoline demand weakened notably in May.
• Implied diesel demanddown about 21% YoYThe chart title indicates that China's implied diesel demand saw a larger YoY decline in May.
• Jet fuel consumptionup about 5% YoYThe report states that jet fuel consumption remained resilient.
• Naphtha consumptionBroadly unchangedThe report states that naphtha consumption was broadly unchanged.
• Sector viewIn-LineThe cover shows the China Energy & Chemicals sector view as In-Line.

Impact & implications

From an investment perspective, the report reinforces the view that China's traditional transport fuel demand is facing both cyclical and structural pressure. Weak gasoline and diesel demand could weigh on refinery margins and crude processing demand, and make inventory destocking more dependent on further refinery run-rate cuts or a recovery in end demand. At the same time, the relative stability of jet fuel and naphtha shows divergence within the oil products chain, with aviation and chemicals-related demand not being the main drag. Accelerating substitution by electric vehicles and public transportation implies that gasoline demand may face more persistent structural pressure over the longer term.

Risks

• The available body content of the report is relatively concentrated, and some charts provide only titles without complete numerical tables, creating a risk of incomplete information in the interpretation of segment data.
• If China's economic activity, logistics, and infrastructure demand recover quickly, gasoline and diesel demand may perform better than the report currently expects.
• If oil prices fall sharply, the marginal incentive for consumers to shift to electric vehicles and public transportation may weaken.
• If refineries continue to cut utilization significantly, inventory pressure may ease, changing the short-term view on oil product supply and demand.

What to watch

• Whether China's apparent gasoline and diesel demand continues to post double-digit YoY declines.
• Whether fuel inventories begin to destock after refinery run-rate cuts.
• The magnitude of refinery run-rate adjustments and their impact on refined product supply.
• Whether jet fuel consumption can maintain YoY growth.
• Whether naphtha demand remains stable, reflecting resilience in the chemical chain.
• The pace at which electric vehicles, ride-hailing, and public transportation substitute for gasoline consumption.