China's oil consumption weakened in May, with gasoline and diesel demand as the main drags

Overview

This report focuses on the current state of oil consumption in China, with the core conclusion that refined oil product demand weakened significantly in May, with the drag concentrated in road transportation-related fuels such as gasoline and diesel. By contrast, jet fuel still maintained year-over-year growth and naphtha remained basically stable, indicating that demand pressure is coming more from road transportation, infrastructure, and logistics activity rather than air travel or chemical feedstock demand.

Core views

The report argues that weak oil demand in China reflects the combined effects of multiple factors: softer macroeconomic activity, slowing infrastructure construction and logistics demand, and high oil prices driving consumers toward new energy vehicles, shared mobility, and public transport. This change is not only a short-term cyclical weakening, but also reflects stronger structural substitution pressure facing traditional transportation fuel consumption.

Analysis framework

The report observes implied oil product consumption by category, including gasoline, diesel, jet fuel, and naphtha, and combines refinery run rates, fuel inventories, and external data sources to assess the sources of demand. The analysis focuses on distinguishing the impact of different end-use scenarios such as road transportation, infrastructure and logistics, aviation, and chemicals on oil product consumption.

Methodology notes

• energy demand trackingoil product consumption analysis by category

  breaking down demand into gasoline, diesel, jet fuel, and naphtha

  The source of demand destruction is identified through year-over-year changes in different oil products: gasoline and diesel correspond more to road transportation, logistics, and infrastructure activity; jet fuel corresponds to air travel; and naphtha corresponds more to chemical demand.

• industry view frameworkMorgan Stanley Industry View

  In-Line

  In-Line means that the analyst expects the sector coverage to perform broadly in line with the relevant broad market benchmark over the next 12-18 months.

Asset mapping & comparison

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

• China gasoline demand

  fuel demand for road transportation and consumer travel

  Strengths

  It remains an important transportation fuel category.

  Weaknesses

  Implied demand in May fell 12% year over year, affected by substitution from new energy vehicles, shared mobility, and public transport.

  Comparison

  Weaker than jet fuel and naphtha performance.

  Risks

  High oil prices, softer economic activity, and electrification of travel modes may continue to suppress demand.

• China diesel demand

  logistics, infrastructure, and road transportation activity

  Strengths

  Highly correlated with real economic activity and freight demand, with strong cyclical signal value.

  Weaknesses

  Implied demand in May fell 21% year over year, making it the main drag.

  Comparison

  The decline was larger than that of gasoline and significantly weaker than jet fuel.

  Risks

  Slower infrastructure activity, insufficient logistics demand, and weaker macro activity may continue to create pressure.

• Jet fuel

  air travel demand

  Strengths

  Consumption in May rose about 5% year over year, showing resilience.

  Weaknesses

  The report does not provide longer-term trends or margin details.

  Comparison

  Significantly better than gasoline and diesel.

  Risks

  If the recovery in air travel slows or oil prices rise, resilience may weaken.

• Naphtha and chemical demand

  chemical feedstock and chemicals chain demand

  Strengths

  Consumption was roughly flat and was not a major source of this round of demand destruction.

  Weaknesses

  Lacks further detail on profitability and inventories.

  Comparison

  Better than gasoline and diesel, but not as strong as jet fuel, which showed growth.

  Risks

  If the chemicals cycle weakens, naphtha demand may soften.

• New energy vehicles and shared mobility

  substitutes for traditional gasoline and diesel transportation fuels

  Strengths

  Substitution appeal is increasing against a backdrop of high oil prices.

  Weaknesses

  The report does not quantify the substitution ratio.

  Comparison

  It has a stronger structural advantage relative to traditional fuel vehicles and road fuel consumption.

  Risks

  Policy, pricing, penetration rates, and changes in travel demand will affect the pace of substitution.

Key data

• Implied gasoline demand in Maydown 12% year over yearThe report states that China's gasoline demand weakened significantly in May.
• Implied diesel demand in Maydown 21% year over yearThe decline in diesel demand was larger than that of gasoline, pointing to weakness in logistics, infrastructure, and road transportation activity.
• Jet fuel consumption in Mayup about 5% year over yearAviation fuel consumption remained resilient.
• Naphtha consumptionroughly flatChemicals-related demand did not show a decline of the same magnitude.
• Total refined oil product consumption in Maydown 13.5% year over yearThe report shows that total oil product consumption declined significantly.
• Total refined oil product consumption since the SOH disruptiondown about 12% year over yearThe original report mentions cumulative pressure since the SOH disruption.
• Fuel inventories and refinery runsinventories remain high and are still elevated despite significant refinery run cutsThe chart title shows that fuel inventories have remained high since the SOH disruption.
• Industry viewIn-LineIndustry view for China Energy & Chemicals.

Impact & implications

From an investment perspective, the decline in traditional transportation fuel demand may weigh on expectations for the refining and oil product consumption chain, especially for assets highly linked to gasoline and diesel demand, road logistics, and infrastructure activity. Meanwhile, substitution by new energy vehicles, shared mobility, and public transport reinforces long-term structural pressure. Aviation- and chemicals-related demand remains relatively stable, which may result in divergence in demand pressure across the oil product mix.

Risks

• Macroeconomic activity may remain soft, further suppressing oil product demand related to road transportation, logistics, and infrastructure.
• High oil prices may accelerate consumers' shift toward new energy vehicles, shared mobility, and public transport.
• Persistently high fuel inventories may limit refinery run rates and the recovery of the oil products chain.
• The report contains disclosures of conflicts of interest such as investment banking business and holdings; investors should treat the research conclusions as one input into decision-making rather than the sole basis.

What to watch

• Whether implied gasoline and diesel demand recovers in subsequent months.
• Whether fuel inventories decline after refinery run cuts.
• Whether year-over-year growth in jet fuel can be sustained.
• Whether naphtha and chemical demand remain stable.
• The pace at which new energy vehicles and public transport substitute for traditional road fuels.
• Changes in high-frequency indicators for infrastructure, logistics, and road transportation activity.