China's Oil Consumption Peaked as Electric Vehicles Take Hold

China's oil consumption has dropped dramatically in Q2 of this year, resulting in a 1% decrease in CO2 emissions. This is a significant shift, as China was previously seen as plateauing its emissions and oil use. The National Bureau of Statistics of China reported that overall oil use decreased by 9%, while transportation-related oil use plummeted by 16%. This decline in oil consumption is largely attributed to the rise of electric vehicles (EVs) in China, with EV sales increasing significantly.

The number of EVs on Chinese roads has increased substantially, leading to a higher usage rate compared to non-EVs. In fact, EVs have displaced more oil than the UK used in the same period. The collapse in internal combustion engine (ICE) vehicle sales has also contributed to this shift. This trend is expected to continue, with many predicting that China will reach peak oil consumption.

According to Sinopec's Chairman Hou Qijun, 'Next year, even if the US-Iran conflict eases up, things might recover, but it won’t hit last year’s level. So it’s very likely demand peaked last year.' This milestone has significant implications for global oil markets, as China is the world's second-largest oil consumer.

The decline in oil consumption and emissions in China serves as a model for other countries to follow. Norway, which has led the way in electrification, saw a similar trend in 2023. If China continues on this path, it could trigger a 'death spiral' that ends oil use altogether. This would be due to decreased demand leading to lower prices, making it uneconomical to extract and explore for oil.