China's gasoline and diesel demand to decline further in 2027

China's downstream fuel market is entering a structural adjustment, not a routine cyclical slowdown. GL Consulting's (premium think tank under Mysteel Group) October 2026 forecast projects gasoline demand to decline by 7.9% in 2026 and 4.1% in 2027, while diesel demand is projected to fall by 8.9% and 3.8%, respectively. Electrification, changing freight patterns and industrial decarbonisation are reshaping fuel consumption, with implications that vary by product, region and customer segment.

At the same time, tighter transaction-level tax oversight could narrow the cost advantages of non-compliant supply, while refinery operations, export flows and low inventories may keep procurement conditions volatile despite weaker domestic demand.

For international energy companies operating in or assessing China, three questions deserve closer attention: where demand exposure is most vulnerable, how compliance changes could affect channel economics, and whether current sourcing and inventory strategies remain fit for a more volatile market.

| Demand Is Becoming More Structurally Differentiated

China's gasoline and diesel outlook is increasingly shaped by changes in energy use rather than economic growth alone.

Passenger-vehicle electrification is reducing the long-term growth potential of gasoline demand. New-energy passenger vehicles accounted for 67% of domestic passenger-vehicle retail sales in September 2026, according to the industry data cited in GL Consulting's analysis. As the vehicle fleet evolves, traditional refuelling demand is likely to face sustained pressure, although the pace of change will differ across regions and customer groups.

Diesel demand faces a more complex set of pressures. Electrification of heavy-duty trucks is expanding from short-haul, fixed-route operations at ports, steel plants, mines and logistics parks towards selected medium-distance routes. LNG trucks, changes in freight transport modes and industrial decarbonisation add to the longer-term challenge for conventional diesel consumption.

The commercial implications are not uniform. Sites serving established freight corridors or industrial customers may experience different demand trajectories from those primarily dependent on passenger vehicles or short-haul diesel transport. National demand forecasts therefore provide a starting point, but not a sufficient basis for individual asset decisions.

For downstream operators, the priority is to reassess exposure by fuel type, region and customer segment. For market analysts and strategists, the key is to distinguish temporary demand fluctuations from structural changes that could affect long-term volumes and asset returns.

| Tighter Compliance Could Reshape Fuel Distribution Economics

China's fuel distribution market is moving towards greater transaction transparency and more integrated tax oversight.

The nationwide expansion of transaction-linked invoicing is designed to connect sales transactions more closely with invoicing and tax reporting. GL Consulting's analysis highlights three components of this shift: transaction data captured at source, more immediate transmission to tax systems, and cross-checking of pump records, sales orders, payment records and related transaction information.

The commercial significance extends beyond administrative processes. Greater data transparency could reduce opportunities associated with non-compliant trading practices and narrow some of the cost advantages previously available to parts of the market.

GL Consulting's analysis also identifies the potential relocation of the consumption-tax collection stage as a further policy development to monitor. The material treats implementation in 2027-2028 as an expectation, rather than a confirmed outcome. Companies should therefore distinguish between measures already being implemented and anticipated future reforms.

For international energy companies, the resulting priorities are practical: reassess local supplier compliance, examine the durability of procurement advantages, and evaluate how potential cost changes could affect pricing, channel relationships and competitive positioning.

More stringent oversight may support compliant operators and established brands, but it does not guarantee customer migration or stronger margins. Location, supply reliability, customer relationships and operating efficiency will remain important determinants of commercial performance.

| Weak Demand Does Not Necessarily Mean Lower Procurement Risk

Chin's domestic fuel demand and near-term supply conditions can move in different directions.

Refinery operating rates, maintenance schedules, crude availability, export economics and commercial inventories all influence the amount of product available to the domestic market. Even when domestic demand is weak, export flows and supply constraints can limit availability or increase procurement uncertainty for specific products.

GL Consulting's October 2026 analysis highlights the pressure on retail margins. Under its stated calculation methodology, which deducts RMB 350 per tonne in operating costs, September retail margins were estimated at approximately RMB 580 per tonne for gasoline and just RMB 27 per tonne for diesel. Actual margins vary with location, sourcing arrangements and individual operating costs, but the figures illustrate how limited the buffer can become when procurement costs and retail prices move at different speeds.

The analysis also points to low domestic commercial inventories, particularly for diesel, alongside continued export flows and constrained global middle-distillate supply. These factors make it risky to assume that weaker demand will automatically translate into easier procurement or lower costs.

For procurement and supply-chain teams, this calls for a more integrated approach. Price expectations matter, but so do alternative supply sources, executable delivery arrangements, storage and logistics capacity, inventory turnover and the cost of switching suppliers. Procurement flexibility can create value only when alternative resources are accessible and the savings or supply-security benefits justify their costs.

| What Should Downstream Companies Reassess Now?

The three developments point to a common management challenge: historical assumptions about fuel demand, sourcing advantages and asset performance may no longer be sufficient.

Companies should reassess three areas:

• Market exposure: Which products, customer segments and regions are most vulnerable to structural demand changes?
• Compliance and channels: Are supplier relationships and procurement advantages sustainable under tighter transaction and tax oversight?
• Supply resilience and asset returns: Do sourcing arrangements, inventory policies and logistics capabilities provide sufficient flexibility without creating excessive cost or capital commitments?

The objective is not to abandon conventional fuel retail prematurely, nor to expand into every alternative-energy segment. It is to protect current earnings while identifying where demand resilience, compliant channels and selective investment opportunities remain viable.

GL Consulting helps global energy businesses interpret China's policy shifts, downstream market dynamics and industrial transformation. By connecting these developments with regional exposure, procurement conditions and asset economics, companies can move beyond broad market forecasts towards more targeted commercial decisions.