China's April oil demand falls to 20-month low on war impact

(P1) China's crude oil throughput in April fell to its lowest level in 20 months, a direct consequence of the Iran war curbing refinery operations and adding to signs of faltering demand in the world's largest oil importer.

(P2) "Investor focus has now shifted toward rising inflation risks, driven by higher-than-expected WPI prints, ongoing fuel price pass-through, and elevated bond yields," Vinod Nair, Head of Research at Geojit Investments, said.

(P3) Refinery processing volumes in April dropped 5.8 percent from a year earlier, according to National Bureau of Statistics data. The slowdown was part of a broader deceleration in industrial activity, with industrial production growth unexpectedly slowing to 4.1 percent year-on-year, a 33-month low.

(P4) The decline in Chinese refining activity suggests weaker demand for crude, potentially capping global oil prices that have remained stubbornly above $100 a barrel. The slowdown serves as a bearish indicator for China's economy and has wider implications, with Moody's already cutting its 2026 GDP growth forecast for India by 80 basis points to six percent, citing higher energy costs.

Domestic Weakness and Geopolitical Headwinds

The drop in refinery runs is rooted in a combination of external shocks and a significant domestic slowdown. Data for April showed a broad-based disappointment across China's economy. Retail sales growth nearly evaporated, slowing to just 0.2 percent year-on-year, the weakest since 2022, dragged down by a 15.3 percent collapse in auto sales.

Fixed asset investment also cratered, falling 1.6 percent year-to-date, a sharp reversal from the 1.7 percent growth seen in the first quarter. This reflects deeply pessimistic investment appetite as geopolitical uncertainty weighs on decision-making. The slowdown in real estate-related sectors like cement (-10.8 percent) and steel (-1.7 percent) further dragged on industrial output, overwhelming the continued strength in export-oriented manufacturing.

Broader Market Impact and Outlook

The turmoil is keeping Brent crude futures elevated, with the international benchmark ending last week at $109.14 a barrel as tanker traffic through the Strait of Hormuz remains minimal. The International Energy Agency has warned that the market could face a severe undersupply of roughly four million barrels per day through October.

For oil-importing nations, the sustained high prices are fueling inflation and pressuring currencies. India's rupee, for example, has depreciated 5.4 percent since the start of the conflict, hitting a fresh all-time low. Market participants will be closely watching for any progress on reopening the Strait of Hormuz and the upcoming meeting of G7 finance ministers for signals on a coordinated response to the economic fallout.

This article is for informational purposes only and does not constitute investment advice.