Oil demand in China, the world’s biggest energy consumer, could contract this year for the first time in two decades as Beijing’s zero-COVID policy keeps people at home during the upcoming holidays and cuts fuel consumption.
Hundreds of millions of Chinese, who normally take to the streets and domestic flights during the Mid-Autumn Festival – which falls on September 10 this year – and the Golden Week holiday in early October, are expected to stay home to avoid sudden lockdowns to curb the outbreak Spread of getting caught by COVID-19.
Lockdowns in key cities like financial hub Shanghai have already hurt China’s oil demand in the second quarter, while a slow recovery is expected for the rest of the year as China sticks to its zero-COVID policy. This could limit absorption of the world’s largest crude oil importer and depress global oil prices.
China’s demand for gasoline, diesel and jet fuel could fall by 380,000 barrels per day (bpd) to 8.09 million bpd in 2022, which would be the first drop since 2002, said Sun Jianan, an analyst with Energy Aspects, calling it a “Turning Point”. Moment”.
By comparison, demand in 2021 grew by 450,000 bpd, or 5.6%.
So far this year, China’s January-August imports of crude oil have fallen 4.7%, the first eight-month decline since at least 2004.
“We believe that imports will not increase significantly until early Q1 23 when China starts sourcing crude oil for the Lunar New Year, rather than our previous expectation for Q4 22,” Sun said.
While state-owned refiners ramp up production, independent refiners — which account for a fifth of China’s crude oil imports — are keeping operations low amid a tax probe, he said.
It didn’t help prospects for vacation travel when about 80,000 visitors were trapped in Sanya, a main tourist hub on the tropical south island of Hainan, in early August after hundreds of COVID cases were detected there.
Local authorities in populous provinces like Hebei, Jiangxi and Henan have forecast road traffic will decrease by up to 20% during this Mid-Autumn Festival last year.
As of August 31, bookings for domestic flights during the holiday season are down 38.5% from 2021, data tracked by ForwardKeys showed, while flight bookings for Golden Week travel are expected to fall 23.8% yoy.
Traffic in the southwestern city of Chengdu, which has extended its COVID lockdown, is down 50% this week from a year earlier, according to Baidu data.
In the fourth quarter, demand for gasoline, diesel and jet fuel is expected to rise about 530,000 bpd from the third quarter to 8.55 million bpd, Energy Aspect’s Sun said, adding that demand could fall further if the COVID cases gain weight.
For aviation fuel, demand of about 500,000 barrels a day is less than half the 1.1 to 1.2 million barrels a day in days before the pandemic, said Mukesh Sadhav, head of downstream and oil trading at consultancy Rystad Energy.
“Resumption of road transport and diesel will depend more on macroeconomic growth,” he said.
Still, Sadhav said China’s fuel consumption could rise by 100,000 barrels a day to 8.2 million barrels a day this year, with demand expected to pick up again after the Communist Party Congress in mid-October.
“Total oil demand is expected to increase by 500,000 barrels per day in November year-on-year and by 1 million barrels per day in December-February as China’s policy becomes clearer,” he said.
Source: Reuters (reported by Muyu Xu; edited by Florence Tan and Tom Hogue)