Oil Markets May Be Misjudging News of China Lockdown

Oil markets may be misjudging news of China’s lockdown, according to a new market note sent to Rigzone by Rystad Energy late Monday.

In the note, Rystad said its analysis of the impact of the latest lockdowns, as reflected in real-time traffic activity, shows their likely effect on China’s short-term oil demand, particularly in transportation, is likely to be minor.

“China’s nationwide road traffic has so far been resilient despite the latest round of lockdowns,” Rystad Energy Senior Vice President Claudio Galimberti stated in the note.

“Reported Covid-19 cases have reached new highs in mainland China, with daily infection numbers surpassing their previous April peak and surging above 40,000 on November 28,” he added.

“The latest surge of infections has led to new lockdowns and movement restrictions of varying magnitude being imposed across several of China’s largest cities, including Guangzhou, Chongqing and Beijing,” Galimberti continued.

The Rystad VP highlighted that real-time data on mainland Chinese road activity indicates a small downturn in country level road traffic during the fourth week of November, “sliding from 97 percent to 95 percent of 2019 levels”.

“By comparison, the country level road traffic index dropped to around 90 percent in April 2022 amid the large-scale Shanghai lockdown,” Galimberti said in the note.

“Over the last few days, we have already seen a rebound in road activity as certain short-lived lockdown measures have been eased and the traffic index has thereafter climbed back to 98 percent,” he added.

Galimberti pointed out, however, that Chinese road traffic remains well below comparable 2020 and 2021 levels “as persistent lockdowns and China’s growth slowdown weigh on road traffic”.

“In essence, so far, the latest round of lockdowns appears to be mimicking previous ones, with nationwide road traffic only marginally affected while selected provinces undergoing comparatively severe lockdowns to try and suppress Covid outbreaks,” Galimberti said.

“However, the street protests against lockdowns emerging in various parts of the country are a novelty and could become a source of further disruption in the coming days,” he added.

According to the latest figures from the World Health Organization (WHO), China’s daily confirmed Covid-19 case peak was seen on May 28, 2022, at 94,753. The country has seen more than 9.5 million confirmed cases of Covid-19, with over 30,000 deaths, WHO figures show. As of November 21, China has administered a total of 3.4 billion vaccine doses, according to WHO data.

Earlier this month, analysts at Standard Chartered warned in a report sent to Rigzone that they expected slow oil demand growth in 2023, and downside risk in the OECD, even with China reopening.

“The slowing of global demand has been so pronounced that China alone (15 percent of total demand) is unlikely to reverse it,” the analysts stated in that report.

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