China’s economy continues to deteriorate as the CCP’s stimulus policies fail, causing a downward spiral from downstream manufacturing to upstream manufacturing. In 2024, China’s demand for refined oil products peaked, leading to severe overcapacity in the petrochemical industry. The revenues and profits of the “Big Three Oil Companies” all saw significant declines as crude oil imports, processing volumes, refined oil sales, and prices all started their comprehensive descent.
The petrochemical industry, known as the industry that transforms “a drop of oil into everything,” begins with crude oil and refines various petroleum and petrochemical products that extend to downstream consumer goods. The trend of China’s economic decline has now spread from downstream manufacturing to upstream manufacturing.
Data released by China’s National Bureau of Statistics shows that in 2024, China’s crude oil imports decreased by 1.9% to 553.42 million tons, while refining volumes of crude oil above designated size decreased by 1.6% to 708.43 million tons. Except for the year 2022, impacted by the epidemic, both data points saw declines for the first time in over two decades.
Meanwhile, refining enterprises face severe overcapacity. According to data from Wood Mackenzie, a global energy consulting firm cited by Reuters, in 2024, the capacity utilization rate of Chinese refining enterprises was only 75.5%, significantly lower than the over 90% utilization rate for U.S. refineries.
Bloomberg recently reported, based on data from Longzhong Information (formerly known as China Petrochemical Business Network established in 1988), that the capacity utilization rate of China’s “Teapot Refineries” has dropped to below 55%. In response to declining profits, they may further reduce utilization rates or extend maintenance shutdowns.
The term “Teapot Refinery” originates from the Western media’s reference to small-scale refining facilities in China, known locally as “local refineries” or “regional refineries.”
Internationally, a capacity utilization rate between 81% and 82% is considered the critical point to assess whether industrial capacity is excessive. A rate below 75% signifies severe overcapacity, while above 85% indicates insufficient capacity.
According to data provided by Zhuochuang Information on January 18, 2024, the theoretical average annual profits for three categories of production routes in China’s refining and chemical industry saw significant declines. The profits, on average, for refining-aromatics, integrated refining-chemicals, and complex refining decreased by 28.88%, 19.68%, and 705% respectively compared to the previous year. The theoretical average profit indicates the value a refining and chemical enterprise can earn by processing one ton of crude oil, which is usually lower in reality.
Zhuochuang Information is a provider of market research and data services for the plastics industry, listed on the Shenzhen Stock Exchange’s Growth Enterprise Market in October 2022.
Looking at the third-quarter performance of the “Big Three Oil Companies” in 2024, both their revenues and profits have been rapidly declining. The “Big Three Oil Companies” refer to PetroChina, Sinopec, and CNOOC.
In the third quarter of 2024, PetroChina’s financial report showed a revenue of 790.41 billion yuan, a year-on-year decrease of 9.8%, and a net profit of 8.544 billion yuan, down by 52.1%.
Sinopec’s financial report for the same period in 2024 revealed a revenue of 702.41 billion yuan, a 12.4% decrease year-on-year, with a net profit of 43.91 billion yuan, a 5.3% decrease.
CNOOC’s financial report for the third quarter of 2024 displayed a revenue of 99.254 billion yuan, a 13.5% decline year-on-year. The net profit was 36.928 billion yuan, a 9% increase, although the profit growth rate decreased by 14.7% compared to the first quarter.
The report “Oil and Gas Industry Development in 2024” published by the China Petroleum Economic and Technological Research Institute on January 21 highlighted that in 2024, China’s apparent consumption of oil amounted to 756 million tons, with total consumption of refined oil totaling 390 million tons, a 1.7% decrease compared to the previous year as refined oil consumption started to decline.
Zhuochuang Information’s oil analyst Meng Peng told Xinhua News Agency last month that the average gasoline price in 2024 was 8,353 yuan per ton, equivalent to 6.19 yuan per liter, a 3.21% decrease year-on-year. The average diesel price was 7,221 yuan per ton, corresponding to 6.14 yuan per liter, down by 5.86%.
According to a Reuters report on January 20, the shift of the Chinese Communist government towards new energy vehicles, including electric and hybrid cars, has limited the demand for fuel. With the rapid increase in the market share of new energy vehicles, the demand for gasoline in China is not expected to grow significantly. Additionally, the surge in market share of LNG trucks and the ongoing weakness in the construction sector have impacted diesel demand.
The word “Fuel” in English refers to the fuel for vehicles, usually referring to types of fuel such as gasoline and diesel, corresponding to the Chinese term “refined oil.”
As per the data from the Chinese Ministry of Public Security, by the end of 2024, China’s inventory of new energy vehicles had reached 31.4 million, accounting for 8.90% of the total number of vehicles. In 2024, there were 11.25 million newly registered new energy vehicles, representing 41.83% of the total new vehicle registrations and a 51.49% year-on-year increase.
A November 2024 report in the China Petroleum Daily stated that the cumulative substitution of consumption of gasoline and diesel by new energy vehicles and natural gas heavy duty trucks exceeded 50 million tons, expanding by 20 million tons compared to the same period in 2023, with the substitution rate reaching around 15%… By 2030 and 2035, gasoline and diesel consumption are expected to decrease by approximately 25% and 50% respectively compared to 2023 levels, with jet fuel becoming the only growth point during this period.
In the short term, diesel demand is negatively affected by weak economic conditions in industries related to goods transport, real estate, and traditional infrastructure. In the medium term, the LNG heavy truck market is experiencing rapid growth, while in the long term, slower growth in the secondary industry is reducing diesel consumption intensity.
Reuters emphasizes that despite China’s economy starting to recover momentum under sustained stimulus measures and avoiding any damage from tariffs expected by the US Trump administration, challenges may persist.
For 2025, this suggests that significant growth in China’s refining and processing may prove difficult, with the most likely area for robust growth being petrochemical products. However, this might not be sufficient to offset the weak demand for gasoline and diesel.
According to the China Petroleum Daily, the Chinese refined oil market has entered a “stock era” and a turning point in the switch between “new and old tracks”.