Asia’s oil demand revival bears the brunt of China’s endless lockdowns

The outlook for oil demand in Asia for 2022 is beginning to darken from what it was a few months earlier, as strict restrictions imposed by China aimed at combating the resurgence of the COVID-19 pandemic. 19 overshadow the positive signs of oil demand emerging from the rest of Asia.

While most Asian governments are easing restrictions, contributing to a sustained recovery in oil demand, China is pursuing a zero COVID-19 policy that has led to a drop in appetite for transportation and other fuels among the Asia’s largest oil consumer.
This leads oil analysts to believe that China’s oil demand growth could at best remain flat in 2022 compared to the previous year, with the possibility of slipping into the red. As a result, overall demand growth in Asia could fall to relatively modest levels in 2022.
“Asian oil demand growth is expected to slow in 2022 as Chinese demand has been hit by a resurgence of COVID-19, with lockdowns imposed in many major cities. Based on our latest April outlook, China’s growth will be stable this year, having increased by 550,000 bpd in 2021,” said Lim Jit Yang, Asia-Pacific Oil Markets Advisor. at S&P Global Commodity Insights.

Demand growth for the rest of Asia excluding China is expected to average 713,000 bpd this year, from 660,000 bpd last year, despite the impact of high fuel prices, according to Platts Analytics from S&P Global.

“Contrary to China’s zero COVID policy, many countries in the region continue to press for the reopening of their economies,” Lim said.

“Nevertheless, the improvement in the rest of Asia will not be able to fill the void left by China, with the region expected to see significantly lower growth this year compared to 2021. /d in 2022, compared to 1.2 million b /d in 2021,” he added.

Platts Analytics has revised Asia’s oil demand growth forecast for 2022 down to 716,000 bpd from the previous forecast of 1.08 million bpd, mainly due to consumption concerns. China.

China is holding back growth

Market sources and analysts said China’s crude demand is unlikely to pick up in the near term as domestic demand remains weak, forcing refiners to cut throughput.

“We have revised China’s oil demand down to near zero growth this year due to weaker demand in the second quarter. It remains uncertain whether the loss in demand in Q2 will be offset by a recovery in demand. demand in H2. This will increase the possibility of further downward revisions,” said Wang Zhuwei, head of Asia oil analysis at S&P Global Commodity Insights.

S&P Global estimated second-quarter China throughput, including crude and other commodities, would drop 4% year-on-year to 14 million bpd.

In April, operating rates at the country’s four state-owned refiners fell to 76.4%, the lowest since 76.1% in April 2020, according to data from S&P Global, while integrated private refineries fell as much as 70% from their highest levels. more than 130% observed over the past two years.

“The central government in China is on track to stick to the zero-tolerance policy, at least until this wave of resurgence of COVID-19 is over,” said a Guangzhou-based source familiar with the policy. of public health in China.

As the recent wave of the pandemic in Beijing draws market attention, analysts fear the shutdowns could spread to more Chinese cities.

“Regarding the impact of the zero-COVID strategy on the Chinese economy and major types of financial assets, we believe the worst is yet to come,” Nomura said. “Over the past week, the number of COVID cases in China has moderated, but the overall sentiment has worsened further.”

Another story elsewhere

While the pandemic in China casts dark clouds over Asian oil demand, the situation is somewhat different in the rest of Asia.

In South Korea, for example, small food and beverage businesses as well as retail businesses are thriving again, helping the transportation of goods and services to increase dramatically and contributing to strong demand for diesel and gasoline. , according to middle distillate marketers from major South Korean companies. refiners including S-Oil.

“The end of winter means that construction activity will also pick up. With the government’s firm resolve to address the housing supply problem, we expect the construction sector to also drive demand for diesel,” said the head of fuel marketing and distribution at S -Oil.

In addition, Indian demand for petroleum products totaled 19.41 million tonnes, or 4.9 million bpd, in March, up 4.2% from March 2021, according to data from the Cell. oil planning and analysis.

India’s crude oil volumes were 106% in March, according to Ministry of Petroleum data, compared to 99% in March 2021. Platts Analytics expects Indian refining volumes in 2022 to be stronger than in 2021 by around 8%.

“As the summer season kicks off across the world and people turn to leisure travel, most Asian countries are removing COVID restrictions, encouraged by the milder effects of novel coronavirus variants, to respond to pent-up demand both domestic and foreign. tourism,” said Rajat Kapoor, managing director of oil, gas and chemicals at Synergy Consulting.
Source: Platts

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Felix J. Dixon