In advanced economies, new cars tend to be replacing old ones on the road.
In China and other emerging nations, however, new cars tend to be additional cars on the road. So it’s an important source of growth in global oil demand.
Check this out:
Michael Tran, Helima Croft, and Christopher Louney at the RBC Capital Markets team, explained in a recent note:
Chinese vehicle sales have increased by over 50% since the turn of the decade, reaching staggering levels north of 27 million units last year. Making fairly modest assumptions on 2017 vehicle sales continue to suggest firm gasoline demand growth of some 250 – 290 kb/d simply given that new vehicles are accumulating on top of a relatively low base of existing vehicles in circulation. Each incremental car sold is an additional vehicle on the road. Chinese vehicle sales have set new annual records in each of the past several years, but what’s staggering is the vehicle allocation mix. Sport Utility Vehicles are spearheading a significant portion of new auto sales. SUVs accounted for almost 33% of aggregate sales last year, up from a mere 7% back in 2010.
Looking at it another way, China bought more cars last year than there are people in Australia, and a third of those were SUVs.
In terms of the role this will play in the global economy, the RBC team notes: “The bottom line is that Chinese gasoline demand growth, and by extension, broad Chinese oil demand growth looks to remain relatively stable even in a softer GDP growth environment given the decoupling of oil demand from a strictly industrialized economy.”
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