Covid-Zero Policies and Pollution Control Measures Slow China’s Oil Demand
(Bloomberg) – China, the world’s largest buyer of crude, is expected to start 2022 with a moderate appetite for oil. For that, you can blame – or thank – Beijing’s increasingly harsh line on virus, pollution, and offenders.
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The winter months are typically when refiners buy crude to replenish their stocks, especially before vacation trips during the Lunar New Year period. But uncertainty over the severity of the new omicron variant and China’s refusal to live with the virus continue to hamper travel plans.
The picture at the dawn of the new year is one of choppy growth in demand, manifested in a slump in the domestic fuel market and reductions in operating rates and refinery margins. The fall in prices will be a comfort to the inflation hawks at the central bank, and could even derail OPEC + plans to increase output when the alliance meets again early next month.
China’s crude imports in January 2022 are expected to be slightly higher than a year earlier, but are expected to decline towards the end of the quarter, according to FGE estimates. The industry consultant predicts that purchases will be around 10.7 million barrels per day in March, more than one million barrels per day below the corresponding period in 2021. This year’s imports are already on track to record the first annual drop since the records began in 2004.
The country’s Covid-zero policies also affect operations. The eastern city of Ningbo canceled all flights to Beijing after a positive case was found on December 6. The ensuing lockdown disrupted deliveries, operations and trade at the largest refinery operated by China Petroleum & Chemical Corp. according to industrial consultant JLC. China reported 50 local infections on Wednesday as an epidemic increased in Zhejiang province.
See also: Covid cases cause factory closures in China’s Zhejiang province
If headwinds persist, it could mean that China’s crude consumption peaks before 2025, the date predicted by the country’s oil majors, which would be a massive boon to President Xi Jinping’s climate goals.
The situation is a long way from the start of the year, when China’s rapid recovery from the pandemic, fueled by a massive expansion in credit and government spending, was the brightest point in an otherwise under-depressed global market. shock from the effects of the virus on demand.
Another hurdle for traders will be the Beijing Olympics in February. The government is likely to insist on blue skies to present the event, which means industrial activity, from steelmaking to oil processing, will suffer. The result is that growth in China’s crude demand in early 2022 will be “somewhat constrained” by the government’s anti-pollution policies, according to FGE.
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Chinese refiners have been fairly inactive in the cash market this month as factories are reluctant to reserve shipments due to arrive around the games, traders say. Refining centers in Hebei and Shandong provinces are expected to be forced to cut cycles.
Refining profits and fuel prices are already affected. Theoretical refining margins for state-owned refiners that process Oman’s crude fell to 423.4 yuan ($ 66.54) per tonne in the week ending December 8, the lowest level in 13 months, based on data tracked by CIHI. Market prices for 95-RON gasoline and Grade Zero diesel fell 10% and 5%, respectively, in November, according to government data.
China’s intensified regulatory oversight across a wide range of industries, from the tech sector to education companies, also applies to its army of independent oil refiners. Many so-called teapots are under investigation for not paying enough taxes and those found guilty could have their crude import quotas reduced, further dampening demand for oil.
(Updates with virus cases in the fifth paragraph.)
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