Diesel sales slide on weaker industrial activity

The drop in diesel demand has come as China, already the world's top energy consumer, tries to shift its economy away from an investment-led model to reduce overcapacity.

Banks have also tightened credit to curb investments in energy-intensive sectors such as cement, glass, coal and steel.

Dragged lower by weaker spending in oil and natural gas exploration as well as the iron ore and base metals sectors, China's fixed-asset investment growth slowed to 17.3 percent year-on-year in the first half of 2014 from 20.1 percent a year earlier, official data showed.

But shrinking diesel consumption, along with slackening coal demand, suggests that the state of China's key industrial sector may be gloomier than official statistics show.

First-half coal sales fell 2.3 percent to 1.73 billion metric tons, even though imports only rose 0.9 percent.

Slackening demand means fewer trucks are carrying coal from Inner Mongolia and Shanxi to the coastal cities.

The first executive said diesel consumption in northern China was the hardest hit, with some areas down 10 to 20 percent in the first half, while growth in the central and western parts of China was also losing momentum.

PetroChina reported in April that its diesel sales fell 15.4 percent in the first quarter.

Its next update on fuel sales will be in late August.

Consultancy IHS CERA has forecast China's diesel demand to fall 0.4 percent this year, the first decline since the research firm started tallying Chinese oil demand in 2002.

Chinese oil firms have also been trying to replace diesel in trucks and ships with liquefied natural gas. But experts said the displacement rate had been slower than expected since the start of the year as overall energy demand has slackened and the cost of natural gas has climbed.

IHS CERA estimated that inventory-adjusted diesel demand fell 1.8 million tons in the first half, while incremental displacement of diesel by natural gas was less than 410,000 tons.

Sinopec, which reported a 5.1 percent drop in diesel output in the first half of 2014, said its total refined fuel sales in the same period edged up 0.4 percent to 81.04 million tons.

It did not give a breakdown for diesel, gasoline and kerosene, but industry sources and CERA researcher Yan Kefeng said gasoline and kerosene sales in China both grew strongly in the first half,

suggesting a solid fall in diesel sales.

China lowers gasoline, diesel prices	Gasoline, diesel prices hiked