Chinese oil demand outlook darkens

The outlook for crude oil demand from the world’s second-largest consumer is clouded amid the continued rise in Covid-19 cases and the prolonged lockdown in Shanghai, where daily cases topped 2,000.

Due to movement restrictions put in place to curb the spread of the virus and the lockdown, China’s oil demand is already weaker, having lost around 1.2-1.3 million barrels per day, data shows. of the energy consulting firm FGE cited by Bloomberg.

Half of the lost demand is in the form of jet fuel, according to the data.

Before the latest coronavirus outbreak, China’s daily demand averaged 13.7 million barrels per day in January and February, the report noted.

“The full lockdown in Shanghai and the severity of the situation there is a bit unexpected,” an FGE analyst told Bloomberg, adding that even if the lockdown in Shanghai ends, half a million barrels of daily demand oil will remain at risk of further restrictions in other parts of the country.

News about the Covid outbreaks in China has spooked oil markets repeatedly over the past two years, given the country’s heavy reliance on imported oil. The first signs of alarm this time around came in March when a 36% drop in traffic was reported for Shanghai in mid-March, while traffic levels in Shenzhen were down 26%.

The reason for the oil market’s reaction, which has always been a sharp drop in prices, is Beijing’s zero covid policy, which relies on immediate shutdowns to stem the spread of the disease.

These blockages, in turn, affect oil consumption and apparently scare off oil traders. In March, authorities locked down Shenzhen, a city of 17.5 million, and oil prices immediately plummeted. This week prices also fell, although this time there was an additional strong factor of reserve release announcements.

By Irina Slav for Oilprice.com

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Felix J. Dixon