New lockdowns in China could derail oil demand growth

  • China’s zero-COVID policy has spooked the oil market several times over the past two years.
  • China has locked down the 17.5 million inhabitants of the Shenzhen business center.
  • Chinese independent refiners in Shandong province have further reduced their prices due to the shutdowns.

Traffic in several major cities across China has dropped significantly since authorities imposed new regional lockdowns over the weekend as part of the zero-COVID policy. Declining traffic in Shanghai and Shenzhen has market participants and analysts worried about the potential threat to oil demand from the world’s largest crude oil importer.

Peak traffic congestion in Shanghai fell 36% on March 15 from the same day last year, while traffic jams in Shenzhen fell 26%, Bloomberg reported Wednesday, citing data from Baidu Inc.

The capital Beijing, which is not currently under lockdown, has also seen traffic congestion decrease significantly, by 25% compared to the same period last year, according to data compiled by Bloomberg.

China’s zero-COVID policy has spooked the oil market repeatedly over the past two years, as authorities opt to immediately lock down large areas and cities when they see COVID cases rise.

Such was the case earlier this week, when oil prices crashed, also because China locked down several cities due to an increase in COVID cases.

China Locked all 17.5 million residents of Shenzhen’s business center and limited bus services in Shanghai after COVID cases spiked in recent days. All of Jilin Province is also under lockdown, while many businesses including Apple and Toyota operations have been affected.

“More widespread lockdowns will weigh on mobility in the coming weeks,” according to a note from Energy Aspects this week cited by Bloomberg. Energy Aspects cut its oil demand estimate for China by 170,000 barrels per day (bpd) for the first quarter and 130,000 bpd for the second quarter.

Chinese independent refiners in Shandong province have further reduced operating rates due to shutdowns, according to local consultancy JLC mentioned Wednesday.

By Tsvetana Paraskova for

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Felix J. Dixon