Oil Demand Showing Signs of Weakness

Global oil demand has been showing signs of weakness in March and this weakness is expected to persist through April and May due to the impact of high oil prices, the negative effects of sanctions and war in Russia and Ukraine, and the consequences of increasing lockdowns in China.

That’s according to Rystad Energy’s Senior Vice President of Analysis, Claudio Galimberti, who noted that, amid the weakening in oil demand, the supply of oil products remains tight.

“The ICE Gasoil-Brent crack in Europe has been trading around unprecedented levels of $25-30 per barrel for the past couple of weeks, higher than even the memorable gasoil crack spike in 2008,” Galimberti said in a Rystad market note sent to Rigzone late Monday.

“Russia currently exports around 800,000 barrels per day of diesel/gasoil to Europe. As Europe imports between 1.6 to 2.0 million barrels per day of diesel/gasoil, an effective ban on Russia’s oil product exports could increase the gasoil crack further,” Galimberti added.

In the note, Galimberti highlighted that road transport demand has been weakening throughout March. The Rystad analyst outlined that this was driven primarily by OECD countries and less so by China, at least so far, despite news of short-lived, Covid-related lockdowns in some provinces over the past couple of months.

“However, Shanghai’s two-week-long, intermittent lockdown launched on 27 March will be amongst the most significant in China thus far this year, due to the size of the population involved (more than 25 million people), with the potential to lower demand by up to 200,000 barrels per day for the duration of the restrictions,” Galimberti said.

“Shanghai’s lockdown will give us an indication on the success of China’s zero-Covid policy and whether it will be maintained or abandoned,” Galimberti added.

According to the latest data from the World Health Organization (WHO), confirmed Covid-19 cases in China have dropped for the past three consecutive weeks, coming in at 46,962 in the week commencing March 21. Deaths have dropped for the last two consecutive weeks and stood at 1,453 in the week commencing March 21, WHO data showed.

As of March 28, 6.23pm CEST, there have been 480.1 million confirmed cases of Covid-19 globally, with 6.1 million deaths, according to the latest WHO figures. As of March 27, a total of 11 billion vaccine doses had been administered, WHO data showed.

To contact the author, email andreas.exarheas@rigzone.com