Chinese oil demand to collapse by 1 million barrels per day following Covid outbreak

China’s oil demand is expected to be 1 million barrels per day (bpd) lower over the next two months than forecast due to the growing number of COVID cases at the world’s largest importer of crude, Goldman Sachs said.

Nonetheless, the overall impact on global oil demand will be more moderate, the investment bank said in a note released by Reuters. Goldman Sachs analysts now see total global crude oil demand at 97.8 million bpd over the next two months, up from around 98.4 million bpd in July.

China has imposed widespread travel restrictions in major cities, including Beijing, over the past two weeks to contain a resurgence of Delta variant COVID cases. As in the previous outbreak, which China quelled with a complete lockdown, the increase in infections is affecting movement and, therefore, fuel consumption.

China is also testing tens of millions of people and to suspend long-haul air and bus travel from cities where COVID cases have been reported in an effort to eradicate the Delta variant outbreak early in the country. The capital Beijing is also tightening travel restrictions, adding to already growing concerns over fuel demand from the world’s largest oil importer. Related: Shell Reports $ 5.5 Billion Net Profit, Boosts Dividends

“The baseline scenario remains that the Delta wave will impact demand, including in China, for only two months, consistent with previous cycles, including most recently in India,” Goldman Sachs said in the note released by Reuters.

The bank sees the impact of the Delta variant as a short-lived drag on demand in China, while demand for oil in Europe, India and Latin America continues to accelerate.

Goldman Sachs remains bullish on oil, still seeing a deficit in the market. This deficit could be reduced by 1 million bpd in the coming weeks with the push of the Delta variant, but the effect will be transient, according to the bank.

By Tsvetana Paraskova for OilUSD

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Felix J. Dixon