SUV Sales in China: Good for Oil, Bad for Air

Sport Utility Vehicle sales in China will be driving growth in oil demand in the next year.

Beijing revised fuel-consumption standards in March to help combat pollution and smog in China’s biggest cities, but a strange loophole in the law relaxed standards for heavier cars like SUVs, which are already seen as a desirable status symbol and are thought to be a safer option on China’s dangerous roads. The new regulations were supposed to make cars more fuel-efficient, but only offered incentives for automakers to build the gas-guzzling vehicles. Because SUVs are bigger and weigh more, like trucks, they have relaxed fuel and emission regulations under the new law.

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China’s National Development Reform Commission promoted electric and natural gas powered vehicles, but since the regulations are weight-based they unwittingly encourage SUV sales. Bernstein Research concluded that the new regulation would have the opposite effect of what was intended, with SUV sales skyrocketing, and electric cars remaining irrelevant at less than 1 percent of cars driven in China.

Chinese SUV sales have grown three times faster than passenger car sales in the last year, a trend that will affect global oil sales as well as the auto industry. Bernstein Research estimates that SUVs will make up 22 percent of vehicles in China by 2020, a figure that is at 15 percent today. Bernstein sees China’s oil consumption as increasing by 5 percent annually, to reach 12.9 million barrels a day in 2018.

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Increased sales of SUVs in China don’t necessarily guarantee a long-term increase in demand for oil from the country. Changes in fuel-efficiency regulations could hurt SUV sales in the future, and Chinese SUV owners may not drive their vehicles as far as SUV owners in other countries.

Beijing’s failed efforts to improve fuel efficiency in the country’s vehicles could have a positive effect for oil investors, but not for China’s air quality or the environment.

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