China’s oil demand falls the most since Wuhan lockdown

(Bloomberg) – China is heading for the biggest oil demand shock since the early days of the pandemic as the country’s efforts to tame a fast-spreading virus hamper large swathes of the economy.

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Demand for gasoline, diesel and aviation fuel in April is expected to fall 20% from a year earlier, according to people with deep knowledge of the country’s energy industry. This equates to a decline in crude oil consumption of 1.2 million barrels per day, they said. It will be the biggest hit to demand since Wuhan was locked down more than two years ago. The central Chinese city has been the epicenter of the coronavirus pandemic.

The drop equates to about 9% of China’s daily oil demand from the 2021 average. Gasoline will see the biggest hit, while kerosene is already low, Chinese oil executives said. expressed on condition of anonymity because they are not authorized to speak publicly. Although demand for diesel from the trucking industry has fallen, the agricultural and industrial sectors are providing some support, they added.

China – the world’s biggest rough importer – is struggling to contain its latest outbreak which has led to a series of lockdowns across the country, including in the financial hub of Shanghai. The country’s pursuit of its Covid Zero strategy has resulted in a web of quarantine rules that hamper mobility and industrial production, snarl supply chains and weigh on fuel consumption.

Economists polled by Bloomberg have again cut their growth forecasts for China due to the resurgence of the virus, while Chinese President Xi Jinping said this week that “we have not yet left the shadow of a pandemic that only happens once in a century”. He also championed the dependent approach to containment.

China had successfully contained sporadic virus outbreaks since Wuhan, but the highly contagious omicron variant made its rapid eradication more difficult. The country is doubling down on its Covid Zero approach, while other nations are opening up and living with the virus.

Gasoline demand in eastern China has fallen about 40% this month, mainly due to the lockdown in Shanghai, Chinese oil executives said. The city has pledged to step up enforcement of its restrictions after deaths rose.

The lockdowns are weighing heavily on the country’s oil refiners. Major state processor China Petrochemical Corp., better known as Sinopec, as well as the country’s independent refiners in Shandong have been forced to cut operating rates as consumption cools. This has led to ballooning fuel stocks, prompting refiners to flip-flop on their fuel export plans and pressure the government for additional quotas to ship more product to overseas markets. .

While China’s battle with Covid has had some impact on oil futures, Brent crude has largely managed to hold above $100 a barrel since Ukraine invaded. Russia at the end of February. Morgan Stanley said the outbreak was a short-term headwind and a bigger-than-expected supply shortfall from Russia and Iran would push prices higher. The bank raised its forecasts for the third and fourth quarters.

Chinese authorities have pledged to maintain the stability of industrial and supply chains by removing obstacles in the logistics sector, Xinhua News reported this week. Road fuel consumption in eastern China is expected to recover gradually in early May, with some high-frequency data already showing improvement, executives interviewed said.

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Felix J. Dixon