Chinese Oil's Inconvenient Truth

Merely stable fuel sales suggest demand's still too anemic.

The good news about China's gas stations is that snacks are flying off the shelves. It's the stuff that comes out of the pumps that is still proving a tougher sell.

Sinopec and PetroChina just reported their first-quarter results. Both bore the scars of low oil prices, albeit with better refining profits providing a salve of sorts.

In addition, Sinopec reported a 41 percent jump in sales of things other than fuel at its gas stations. Sinopec has almost 31,000 of these and has a branded convenience-store chain called "Easy Joy" (it even has its own online shopping site). There are long-running plans to list the marketing arm separately, which these results may help to revive.

What won't help quite so much is the main business of these stations, selling fuel. Sinopec and PetroChina together account for more than half the fuel sold in China, so their quarterly numbers provide a useful indicator of the world's number-one source of expected oil-demand growth.

Last year saw an outright decline in their combined domestic fuel sales, as I wrote about here. The first quarter of 2016 was actually a bit better. Sinopec's sales increased by 2.9 percent, year over year, beating its own guidance. Against that, though, PetroChina reported its fourth straight quarter of decline, leaving combined sales up just 0.8 percent.

Here's the overall trend, served three ways:

Low Octane

Change in combined domestic fuel sales of Sinopec and PetroChina, year over year

Source: the companies

Down at the Station

Domestic fuel sales

Source: the companies

On a Plain

Combined domestic fuel sales of Sinopec and PetroChina, trailing four quarters

Source: the companies

All three paint a picture of a domestic market that has slowed significantly since the boom of the supercycle. The main culprit is a drop-off in diesel demand, as China tries to pivot away from growth relying on heavy industry, which offsets much of the gain seen in consumer demand for gasoline. PetroChina reported a 0.8 percent increase in gasoline sales in its first quarter. But for every extra tonne of gasoline it sold, it lost almost 5 tonnes of diesel sales.

That sales growth was positive overall will offer some support to oil bulls. But a sustained recovery needs Chinese sales to be surging, not merely stable -- not least because any gallon of refined products not sold at home ends up being exported. The global oil market cannot live on snacks alone. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Liam Denning in San Francisco at

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