China Oil Demand Outlook Darkens

China Oil Demand Outlook Darkens
The continued rise in cases in Shanghai despite the lockdown underscores the challenge China is facing.

China’s worsening Covid-19 outbreak and the extended lockdown in Shanghai has oil analysts cutting their demand forecasts further. 

The commercial hub’s staggered eight-day lockdown that was supposed to end earlier this week is still going, with record case numbers topping 20,000 on Thursday. Traffic congestion levels at peak hours are 40% lower than a year ago, data from Baidu Inc. show, while the movement restrictions and virus testing means truckers can’t get to the docks.

The continued rise in cases in Shanghai despite the lockdown underscores the challenge China is facing in trying to maintain its Covid Zero strategy in the face of the highly infectious omicron variant. Restrictions on movement are being rolled out in an increasing number of cities across the country. 

The measures have knocked out 1.2 million to 1.3 million barrels a day of Chinese transport fuel demand, with jet fuel accounting for around half of that, according to FGE. That’s the second downward revision the industry consultant has made in the last few weeks. China’s apparent oil demand averaged around 13.7 million barrels a day in January and February before the current virus outbreak, Bloomberg calculations based on official data show.  

“The full lockdown in Shanghai and the severity of the situation there is a little unexpected,” said Mia Geng, an analyst at FGE in Singapore. Even if the Shanghai outbreak ends, there will still be 500,000 barrels a day of fuel demand at constant risk due to the possibility of restrictions in other parts of the country, she said. 

More than 38,000 medics from 15 provincial-level regions have rushed to China's business hub Shanghai to aid the megacity in its fight against resurging COVID-19 #XinhuaHeadlines https://t.co/2TjL7XcHW1 pic.twitter.com/EemSr9hOlG

— China Xinhua News (@XHNews) April 6, 2022

Long-distance travel within China is suffering as caution reigns, even in areas where there have not been outbreaks. There were 26% fewer trips over the Tomb Sweeping Festival from April 3 and 5 than last year, Ministry of Culture and Tourism data show.

No more than 10% of flights planned in and out of Shanghai’s two main airports were completed on Thursday, according to VariFlight, a Chinese data provider. Run rates at China’s independent refiners in Shandong sank to 49.4% of capacity this week, the lowest since 2016 excluding 2020, when the pandemic started, according to OilChem.

Wood Mackenzie Ltd. is forecasting the current wave of virus and lockdown measures will result in gasoline and jet fuel demand falling by 750,000 barrels a day in March and 600,000 barrels a day in April. The weakened consumption could persist through May, said consultant Yuwei Pei.

--With assistance from Claire Che.


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