After China, who will drive the global growth in oil demand?

Which country will be the engine of global oil demand growth next? That has become a burning question for energy market stakeholders as they consign two decades of red-hot Chinese oil consumption growth to the pages of history, much sooner than anticipated.

Naturally, the spotlight swings promptly to India, the third-largest demand centre for oil after the US and China, home to world’s largest population (65% of it under the age of 35), and enjoying a robust 6-7% annual GDP growth.

But it is imperative that the analysis that follows, and critically, how it informs projections of global oil demand trajectory, is put in the context of absolute numbers with baselines kept firmly in view, no matter how seductive the growth measured in percentages.

No doubt, India’s economic and oil demand growth pack a strong momentum that could continue well past this decade. The 3.8% annual increase in India’s oil consumption in 2024 indicated by official data overshadowed that of China, estimated to be around 1%.

Demand peak in China

In absolute terms, India’s incremental oil products consumption of 190,000 b/d last year came close to what China added to its demand year-on-year, likely 150-200,000 b/d as per consensus estimates. The country does not provide official data on domestic oil sales, and analysts’ deductions of the number vary.

Analysts at Chinese state-owned oil giants are unanimous that the country’s gasoline and diesel demand are close to their peaks, thanks to a combination of key structural shifts in the nature and speed of economic growth and the rapid penetration of electric vehicles. While the market is contemplating peak oil for China before the end of this decade, a top in Indian consumption is not yet on the horizon.

But India is not about to become the kind of juggernaut for global oil demand growth that China was for much of this century. The baseline for growth matters when comparing the two nations, all the more so when India’s oil use is less than a third of what China consumes.

Divergence in demand

Chinese refined products demand is estimated around 16.6 million b/d in 2024, while Indian consumption averaged around 5.14 million b/d. The ratio mirrors that of their GDPs, with the International Monetary Fund pegging China’s economic value at $18.53 trillion and India’s at $3.93 trillion.

Much of China’s red-hot growth in oil consumption since the turn of the century was spurred by galloping diesel demand fuelled by its manufacturing and property sector booms. While India has seen a surge in infrastructure projects over the past decade, especially in the public sector, the scale is much smaller. The South Asian country has also embarked on a push to expand its manufacturing sector but its size is about a tenth that of China, which was propped up by extensive government subsidies and incentives; Indian factory activity is unlikely to catch up any time soon, if ever. Equally implausible is that India’s property sector will balloon at the rate of China’s, which is now straining under its own weight of overcapacity.

Varying pace of electrification

There is a big gap in the pace of electrification of automobile fleets in the two countries. EVs and hybrids accounted for roughly 2.4% of total passenger car sales in India in 2024, versus about 47% in China. But it still does not mean that Indian gasoline demand could gallop fast enough to offset the drop in China. Why? Again, the baselines are far apart. Total car sales in China came in at 23.1 million units in 2024, while those in India were 4.3 million units.

On balance, Indian oil demand, even if growing at an optimistic rate of 4% annually, will contribute about 200,000 b/d to the increase in global consumption, a far cry from the average 600,000 b/d that China added between 2009 and 2019.

The global oil market is at a historic inflection point on demand. There are no contenders for the driving seat being vacated by China. The two major consumption centres of US and OECD Europe are past their historical peaks and likely to see a plateau or slip into a gradual decline. Overall global oil consumption is likely to continue growing into next decade, but the momentum will be scattered across mid-sized and smaller emerging economies in Asia, Middle East, Africa and Latin America, making the trajectory less consistent and probably more unpredictable than the one hitherto shaped by China.

The new normal in oil demand

Most importantly, growth in those countries, coming on a far smaller base than China, will be modest in absolute terms. Combined with the forces of gradual electrification of road transportation and growing penetration of biofuels, it suggests that annual global oil consumption growth of 700-800,000 b/d, or less than 0.8%, could be the new normal, sliding from the average rate of 1.3% through the 2010s.

Longer-term, this raises tricky policy questions for the OPEC/non-OPEC alliance that is withholding nearly 6 million b/d of output from the market, especially if producers outside the group are easily able to satisfy the increase in global demand.