China's Q2 Oil Demand Fell 9% on EV Surge, but ULSD Holds at $4.54 as Hormuz Constraints Prevail
China's accelerating exit from petroleum products is running into Strait of Hormuz supply constraints that are keeping distillate markets firm.
China's oil consumption fell 9% year over year in the second quarter of 2026 as elevated crude prices pushed consumers and transport operators toward electric vehicles, battery trucks, and electrified industrial equipment, according to an analysis published Thursday (2026-09-03) by the Centre for Research on Energy and Clean Air.7
NYMEX ULSD heating oil front-month settled at $4.54 per gallon at Friday (2026-09-04)'s close, unchanged, despite data that would ordinarily support a meaningful correction in distillate markets. ICE Brent crude front-month held at $94.97 per barrel. That level sits above the $90 year-end average Brent that Mirae Asset analyst Mohammed Imran had cautioned was possible under sustained Hormuz disruption through mid-September, suggesting the supply disruption has run deeper than initially priced.7,6
Electric vehicles displaced 36 million metric tons of oil in the first half of 2026, accounting for roughly one-third of the total reduction in Chinese oil demand, CREA found. In the second quarter alone, EV displacement reached 19 million tons, 50% more than the year-earlier period.7
The trucking sector amplified the shift. Alternative-fuel penetration in China's heavy transport market jumped 90% year over year between January and June 2026, cutting diesel consumption across one of the country's largest transportation fuel markets.7
Yet ULSD has not buckled. The Iran conflict disrupted global LNG supplies, pushing some buyers toward coal and oil products as substitutes and providing a partial offset to the Chinese demand contraction, CryptoBriefing reported. Standard Chartered Bank energy research head Emily Ashford noted in a report sent to Rigzone on June 30 (2026-06-30) that oil's "softening trend" had continued as "the return of easy barrels outpaces demand recovery," but that assessment preceded the Q2 Chinese consumption data now confirming the scale of the shift.5,2
China's reserve strategy complicates the supply picture further. Some analysts estimated that Beijing entered the Iran conflict at the end of February 2026 with as many as 1.4 billion barrels in strategic and commercial crude reserves, giving it the option to draw on inventories rather than buy on the spot market. China's pullback removed roughly 4 million barrels per day of import demand from global markets during the period, limiting the oil price spike while masking how deeply domestic consumption was falling.4
Supply from outside the Gulf has been growing. The UAE, having left OPEC to bypass production quotas, lifted output to approximately 3.8 million barrels per day — the highest since April 2020 — and directed increased crude volumes toward Chinese buyers, Rigzone reported.3
The EV build-out in China shows no sign of leveling off. EV market share reached 53% of passenger vehicle sales in April 2026, up from 47% a year earlier, Carbon Brief reported. During the 1 May 2026 holiday, 24% of highway trips were made in electric vehicles even though EVs account for only 15% of registered vehicles, a utilization rate that suggests fuel displacement is outrunning registration share.1
The emissions picture carries its own complication. Lower oil consumption prevented roughly 35 million tons of carbon dioxide in the second quarter, equal to about 1.3% of China's total emissions during the period, per CREA's estimates. But power-sector CO2 rose 3% over the same quarter as coal-fired generation expanded to meet electricity demand from EV charging and industrial electrification.7
Sinopec reported oil product sales up 4.8% in the first quarter of 2026. Apparent consumption grew 5.5% in January and February before falling 0.3% in March as elevated prices began registering, Carbon Brief noted. Whether Chinese crude import volumes through September confirm the Q2 consumption drop as durable, or reveal that stockpile drawdowns have been suppressing the headline demand figure, will shape the ULSD outlook entering the autumn heating season.1