Trade War Threatens China's Oil Demand, Risks 90,000 BPD Loss in 2025

Oil prices are under strain due to U.S. talks with Iran, looming U.S. tariffs, rising OPEC+ supply forecasts, and reduced oil demand projections from the IEA and OPEC, eroding investor confidence. Escalating U.S.-China tensions and a potential tariff war threaten to further depress prices, already faltering, impacting product prices. However, seasonal summer demand and refinery crude needs could tighten the market balance, potentially lifting Brent crude from $67 per barrel to the low $70s. “A prolonged trade war could wipe out up to half of China’s projected 2025 oil demand growth of 180,000 barrels per day, should downside risks materialize,” said Rystad Energy analysts.

Chinese gasoline and diesel prices declined less than in Singapore, closing arbitrages, while jet fuel arbitrage stayed open.

With negative export margins deepening, refiners rediverted some planned exports towards the domestic market amid a heavy maintenance season.

With independent refiners set to raise utilization rates amid strengthening margins, gasoline and diesel cracks are looking to weaken in the coming weeks.

China’s Oil Demand

The U.S.-China trade war, fueled by uncertainties over President Trump’s tariff policies, is disrupting global markets and threatening China’s oil demand outlook. Despite strong 5.4% GDP growth in Q1, driven by last year’s stimulus, a prolonged trade war could slow China’s GDP growth by 1%, reducing oil demand growth by 90,000 bpd from 180,000 bpd. New stimulus may mitigate losses, but impacts vary across products:

Diesel: Faces significant demand loss due to reduced industrial activity and transportation.
Petrochemicals: Downside pressure from trade decline, though domestic feedstock demand may rise.
Naphtha: Gains as steam cracker utilization offsets propane dehydrogenation losses.
LPG (Propane): Risks losing 100,000 bpd due to reliance on U.S. supply.
Gasoline and Jet Fuel: Unaffected in a mild scenario, with potential consumption upside from lower prices.