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Donald Trump’s US election win is unlikely to hit Chinese oil demand despite concerns about the impact of a potential escalation in the US-China trade war on the latter’s economy, several market sources told S&P Global Commodity Insights, with some adding that Beijing will now focus even harder on solving its domestic economic problems, as was evident in the recently announced stimulus measures.
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Chinese oil demand has been a focus of oil markets, and its slowing growth has played a key role in keeping a lid on oil prices despite rising geopolitical tensions in the Middle East.
“China can focus a lot more on domestic demand recovery as well as some emerging market demand support. And that business model or economic model can work and work better than what we have seen for the last three years,” Janet Kong, CEO of Hengli Petrochemical Singapore, said, adding that China has a large enough population and demand in the domestic market can do well on its own.
Analysts said the transportation fuel demand for sending Chinese goods to the US — which could take a hit as exports slow down owing to tariffs — is very small compared with oil consumption from the property and infrastructure construction sector.
This includes gasoil for distributing material or fine goods among factories and ports by trucks, and bunker fuel oil for shipping the goods to the US.
Following the US election result, China’s Ministry of Finance on Nov. 8 announced strong supportive policies to help ease local governments’ burden of mounting hidden debts. With the policies, market sources expected infrastructure investments by local governments to gain pace, which would be positive for gasoil demand next year.
The ministry also implied further fiscal stimulus will be introduced in 2025 to support economic growth, while industrial sources expected more efforts to stabilize household income expectations by increasing asset prices, particularly in property and equity markets, to boost domestic consumption.
Prior to its slowdown, which began in 2020, the property and infrastructure sector was a key driver of China’s economic growth, significantly contributing to the consumption of gasoil, asphalt and petrochemical products.
Moreover, China’s fast-expanding petrochemical capacity is set to boost demand for oil feedstocks, regardless of the impact of Trump’s potential tariffs on petrochemical products, analysts said.
China’s exports of finished goods, such as toys, which need petrochemical products for their manufacturing, to the US are likely to attract hefty duties with Trump back in the house.
“It takes time for demand for petrochemical products to get affected. Moreover, [petrochemical] products will be diverted to other manufacturing countries, such as those in ASEAN, [to produce finished goods for export to the US]. More importantly, the new petrochemical capacity requires more feedstock demand,” a Hong Kong-based analyst said.
S&P Global Commodity Insights analysts expect China’s naphtha imports to jump about 28.5% year on year to about 431,000 b/d in 2025 as a number of new crackers come online, while LPG imports are set to rise 10% to 1.24 million b/d.
“No material impact [from Trump’s victory] on demand in the short term, but if a trade war escalates, it could affect oil trade, particularly crude oil trade flows,” said Fenglei Shi, head of Greater China downstream research with Commodity Insights. Commodity Insights expected China’s oil demand to grow 1.1% to 17.29 million b/d in 2024 and gain 1.7% in 2025 to 17.59 million b/d.
Counter-tariffs on US energy products
Meanwhile, Beijing is expected to be more cautious this time about imposing counter-measures on US energy imports in a trade war, said a Beijing-based trading official with a state-owned oil and gas giant.
“Being flexible and open to all global resources is important to China. For example, US crudes are important to keep state-run Sinopec’s refineries competitive in the industry when Trump is expected to boost production,” another trader with a second state-backed oil company said.
Sinopec is the world’s top refinery by capacity, but compared to its peers, it lacks stable cheap crude supplies. Its state-owned peer PetroChina has exclusive access to pipelined Russian crudes, while the independent refineries in Shandong rely on sanctioned barrels from Iran, Russia and Venezuela to meet almost all their crude needs.
Both the trading sources said the phase 1 trade deal signed on Jan. 15, 2020, proved the significance of energy cooperation between Washington and Beijing.China’s crude imports from the US hit a record high in 2020, averaging 396,000 b/d, customs data showed, as China agreed to purchase an additional $52.4 billion worth of energy products in 2020-2021 compared with 2017.
Before the agreement, Beijing announced additional tariffs on several US energy products, led by 25% on LNG and 5% on crude oil, as its response to the duties initiated by Trump’s government on Chinese goods.
However, the volume was not sustainable as the Russia-Ukraine conflict restructured global trade flows after Trump’s departure.In the first three quarters of 2024, China’s crude imports from the US slumped 33.6% year on year to 194,000 b/d, customs data showed.
Iranian crude flows
It is widely expected that Trump will target Iranian exports to China in an effort to vigorously enforce a return to maximum sanctions enforcement to strike a new nuclear deal with Iran.
Commodity Insights’ AltView estimated Trump’s targeting could lead to a reduction of between 500,000 b/d and 1 million b/d in the flow of Iranian oil to China by June 2025.
“But the shadow transaction chain has been completed and running well, completely exclusive from the US dollar system. The power of US sanctions has been falling,” said a Shanghai-based senior analyst with a Chinese investment company.
While Trump could return to maximum pressure sanctions, it would be harder to achieve this time around because more extensive illicit financing and shipping networks have emerged, Rachel Ziemba, an advisor with political risk consultancy Horizon Engage, said in an email.
However, “Israel would feel less restrained vis-à-vis Iran during a Trump administration, which may lead to an attack on Iran’s oil facilities, thus dampening production,” Zhuwei Wang, director of East of Suez oil market research at Commodity Insights, said.
China’s independent refineries even increased their Iranian crude imports by 1.6% from September to 6.54 million mt (1.55 million b/d) in October, according to Commodity Insights data collected from various sources.
This comes despite Washington broadening the scope of its sanctions on Oct. 11 to include anyone operating in the Iranian petroleum and petrochemical sectors in response to its missile attacks on Israel. The US treasury and state departments also utilized other authorities to sanction 23 vessels and 16 entities involved in the ghost fleet facilitating Tehran’s petroleum trade.
Some of the October shipments were even delivered by vessels in the sanction list with their signals shut.
The October volume, which was below the record high of 7.11 million mt seen in August, was more than double the previous monthly high of 3.34 million mt in August 2017, before Trump’s government reimposed the nuclear-related secondary sanction on Iran in May 2018.