China's Actual Oil Demand Obscured by Resurgent Unlicensed Fuel Trade

Chinese oil demand figures derived from official data may be underestimating actual consumption, as a resurgence in unlicensed fuel sales since the outbreak of the Middle East war has redirected diesel and gasoline volumes away from monitored retail channels, according to five analysts, six traders, and four transport operators.

China is the world's largest crude oil importer, and the accuracy of its consumption estimates feeds directly into global supply-demand assessments by the International Energy Agency and OPEC, which in turn inform production decisions by exporters from Saudi Arabia to the United States.

Beijing does not publish actual oil consumption data, so the market relies on "apparent demand" — calculated as official refinery throughput plus net imports of refined products. This methodology, also used by the IEA and OPEC in their monthly oil market reports, captures only fuel moving through licensed refining and distribution channels. According to official figures, China's total apparent oil demand in the second quarter of 2026 fell 12% year over year to 153.47 million metric tons.

Chinese oil demand has contracted sharply amid Middle East disruptions, with refiners drawing down inventories, contending with weak refining margins, and facing ongoing restrictions on refined product exports. In June, crude imports fell to a near-decade low of 7.15 million barrels per day, and refinery throughput slid to a near four-year low of 12.52 million b/d, according to state statistical data — down 38% and 15%, respectively, year over year.

Structural Decline Accelerated by Pump Price Hikes

China's gasoline demand peaked in 2024 and has been in structural decline since then, according to S&P Global Energy CERA estimates, driven primarily by one of the world's fastest electric vehicle adoption curves. China's NEV penetration rate has surpassed 50% of new passenger car sales in 2025, compressing gasoline's growth ceiling more rapidly than in any other major economy. Recent pump price increases have accelerated this trend. In June, land transportation fuel sales at the retail outlets of Sinopec and PetroChina fell by as much as 20% year over year following fuel price hikes triggered by the Middle East war, analysts at the two state-run oil companies told Platts, part of S&P Global Energy.

Sinopec, which operates China's largest product sales network, reported that its domestic oil product sales slumped 18.9% year over year to 35.58 million mt in the April–June period, according to a first-half 2026 operating update.

However, China's actual end-use oil demand likely did not decline by that magnitude, even accounting for the rapid adoption of new energy vehicles, analysts said.

S&P Global Energy CERA estimated that underlying demand for gasoil in the second quarter declined by approximately 8.2% year over year. By comparison, China's apparent gasoil demand — calculated from official refinery output and net imports — fell 13.7% year over year to 3.3 million b/d during the quarter.

A London-based oil analyst estimated that China's actual gasoline and diesel production runs approximately 200,000 b/d above official figures, potentially reflecting off-record fuel volumes supplied through undocumented supply chains.

China's gasoline output in the second quarter slumped 9.9% year over year to 3.12 million b/d, while diesel production dropped 14.2% to 3.37 million b/d, according to data from the National Bureau of Statistics.

Unlicensed Sales via Mobile Refueling Vehicles

With the Middle East conflict keeping oil prices elevated, some private wholesalers have deployed unauthorized tanker vehicles to supply discounted diesel and gasoline directly to commercial vehicles and construction equipment, bypassing monitored retail station pumps and avoiding tax scrutiny, according to trading sources.

These unlicensed fuel sales — conducted mainly through unauthorized "mobile refueling vehicles" — are not captured in official statistics and are obscuring the official data showing falling gasoline and diesel consumption, multiple domestic wholesalers told Platts.

The fuel sold through these channels is typically 1–2 yuan per liter cheaper than at regular service stations and comes without invoices for reimbursement, according to four operators with vehicle leasing and truck fleet companies.

Chinese authorities have cracked down on such sales in the past, but oil product traders and truck fleet owners said the recent rise in pump prices has revived the activity. A Shanghai-based oil analyst with an investment bank noted that many diesel-powered truck fleets are purchasing fuel from the unlicensed market, adding: "It is difficult to quantify how many fleets rely on these channels and how much fuel they consume nationwide."

Typically supplied by independent refineries to fuel wholesalers, approximately one-third of diesel sold by private wholesalers and retailers was distributed via unauthorized mobile refueling vehicles in the first half of 2025, according to three domestic traders.

Regulatory Response and Inventory Constraints

In September 2025, China's Ministry of Commerce implemented a new regulation prohibiting wholesalers from supplying refined oil products directly to end users, including motor vehicles, vessels, and machinery. Retailers are also required to obtain approval before engaging in such transactions.

The Ministry of Commerce did not respond to a Platts query on whether it acknowledges or estimates the size of unlicensed fuel sales in the market. The National Bureau of Statistics, which oversees China's refining throughput and product output data, also did not respond.

The current surge in unlicensed markets may prove self-limiting, however, with potential knock-on effects for China's crude purchasing appetite and global prices, according to CERA analysts and market analysts in Shanghai and London.

The independent refineries supplying the unlicensed market are concentrated in Shandong province and are the primary buyers of sanctioned Iranian and Russian crude, according to five transportation fuel traders in Shandong and Guangdong. These facilities — commonly known as "teapot" refineries — became significant crude importers after Beijing began granting them import licenses in late 2015, transforming Shandong into a hub for independent processing outside the control of state-owned majors.

Commercial and refinery crude stocks in the province — covering both state-owned and independent storage tanks — dropped to approximately 274.84 million barrels in July from 294.96 million barrels in April, according to Kpler shipping data.

"Unauthorized supplies rely on the crude inventories available to the independent producers," the Shanghai-based analyst said. "As their crude imports decline and they burn through stocks during the war, such supplies will not be sustained."

CERA analysts noted that an eventual reduction in unofficial fuel volumes would have dual effects: replacing the lost barrels would require fresh crude purchases, adding upward pressure on prices, but removing discounted fuel from the market would also raise pump prices for end-users, denting consumption and partially offsetting the need for incremental compliant imports.

That demand-destruction offset would intensify if renewed disruption to flows through the Strait of Hormuz pushed crude — and consequently fuel — prices higher still, the CERA analysts added.

Source: Platts, S&P Global Energy