Diesel sales slide on weaker industrial activity

A man fuels his vehicle at a Sinopec gas station in Huaibei, Anhui province. Diesel sales by China Petroleum & Chemical Corp (Sinopec) and PetroChina Co Ltd are set to post an annual decline in 2014 following decreases in the first half. [Photo/China Daily]

China's diesel demand is set to post its first fall in more than a decade this year, sources at the country's oil majors said, as a sputtering economy takes its toll on key industrial sectors.

Diesel, used to run trucks and tractors and generate power at construction and mining sites, is a bellwether of industrial activity. A fall in real consumption may signal China's economic slowdown is worse than official statistics indicate.

Recent economic statistics have boosted confidence that the world's second-biggest economy is regaining momentum after a spate of stimulus measures, although unexpected weakness in the services sector showed the recovery is still fragile.

Diesel sales by China Petroleum & Chemical Corp (Sinopec) and PetroChina Co Ltd, which together supply nearly 90 percent of China's market, are set to post an annual decline in 2014 following decreases in the first half, two sources with knowledge of the companies' fuel marketing told Reuters.

Weak domestic sales would force refiners to maintain hefty diesel exports, weighing on a stagnant Asian market and crimping the return for processing crude oil into diesel.

Diesel makes up about one-third of China's total oil demand.

PetroChina, the country's second-largest refiner, recorded a near 5 percent decline in domestic sales in the first half of 2014 and is likely to record a similar decline for the whole year, said a fuel marketing executive.

Sinopec, Asia's largest refiner, also looks poised to post a drop in diesel sales for 2014, having seen sales decline "quite a bit" in the first half, according to a company official.

Both sources requested anonymity as they were not authorized to speak to the media on sales figures.

"An outright fall in diesel sales is something I can't recall for many years," said the first executive. "Coal mining and construction activities are slowing, and so is transportation."

Real fuel demand in China is difficult to gauge as the world's second-largest oil user publishes production and import-export data but rarely gives information about fuel inventories.

Implied demand for diesel, which adds refinery crude throughput to net fuel imports but does not take account into inventory movements, rose 0.5 percent in the first half, according to Reuters calculations.

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