MNI INTERVIEW: Less Demand Eases China's Oil Supply Pressure

Coal liquefaction and gasification processes have helped China marginally reduce oil demand while ensuring supplies of key chemical feedstocks, a senior commodities advisor told MNI, adding that state-owned oil companies’ decision to sell West African crude cargoes last week indicated Beijing’s more optimistic supply outlook.

While these measures have helped curb oil demand at the margin, costs remain high under current technological conditions, said Wang Yongzhong, director of the Department of International Commodities under the Chinese Academy of Social Sciences, noting they have nevertheless helped secure basic industrial feedstocks and fertilizer inputs.

“It is necessary to prioritise the supply and price stability of fertilizers for spring planting, while moderately exporting to the global market to help ease the food security crisis,” he said, rejecting suggestions of a urea exports ban. (See MNI INTERVIEW: Long Conflict A Risk To China Chemical Output)

Meanwhile, major state-owned oil companies reportedly sold crude oil cargoes from West Africa last week after state refiners broadly cut operating rates. “The current sell-off may suggest that China has reassessed the certainty of future supply,” Wang added.

According to OilChem data, weak refining margins and soft demand have pushed the operating rate of state-owned refineries below 70%. The government also lowered gasoline and diesel prices last week for the first time in 2026 following the ceasefire.

Wang remained cautiously optimistic about China’s energy supply outlook, noting a further escalation of the conflict appears unlikely given domestic political pressures facing U.S. President Donald Trump and Iran’s need to maintain oil trade. “If the war truly ends and the Strait of Hormuz gradually reopens to traffic, oil prices are estimated to remain elevated at around USD80-90 per barrel given the damage to production capacity,” Wang said, adding that this level should be manageable for the Chinese economy given its low inflation environment.

“China has likely not yet used its national strategic reserves, as inventories held by petroleum companies remain sufficient to meet demand so far.” While China can still withstand energy supply disruptions two months after the outbreak of the Iran conflict, it may become necessary to draw on the oil companies’ mandatory reserves to fulfill social responsibility, as their voluntarily reserves for commercial purposes gradually deplete, he noted. 

Oil consumption has declined in the past two months, as refined oil exports have been halted and more consumers turn to electric vehicles or public transportation, Wang added. 

ENERGY TRANSITION

The recent disruption is likely to accelerate China’s energy transition, Wang argued, pointing to State Council documents issued last week that set out stronger carbon-reduction assessments. China will work to peak coal and oil consumption, vigorously develop non-fossil energy and new forms of energy storage, and accelerate construction of a new power system, the document said.

Wang stressed, however, that energy security and transition must be coordinated, with coal continuing to play a safety-net role in the near term while cleaner utilisation expands.

Coal accounted for 51.4% of China’s total energy consumption in 2025, down 1.8 percentage points from 2024, while clean energy use — including natural gas, hydropower, nuclear, wind and solar — rose 1.8 pp to 30.4%, according to China’s annual statistical communiqué.