No rapid recovery in Chinese oil demand as battle against COVID continues

BEIJING/SINGAPORE, April 29 (Reuters) – China’s oil demand is expected to remain weak in May as COVID-19 lockdowns across the country reduce travel plans over the Labor Day holiday period, according to analysts and traders.

Millions of people typically travel during the five-day holiday centered around May Day, which typically boosts fuel demand. However, forecasts from the country’s aviation regulator and data companies show that flights and car traffic are expected to decline, indicating lower demand for gasoline and jet fuel.

This will add to a downward trend in fuel demand caused by COVID restrictions in China, the world’s largest oil importer, which could impact the global crude market.

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Gasoline and jet fuel demand will remain under pressure in May due to restrictions on city and provincial travel, said Yuwei Pei, analyst at Wood Mackenzie.

This follows a forecast drop in gasoline demand in April of 18% from a year earlier, following a 9% drop in March, according to data from Wood Mackenzie.

Jet fuel consumption is expected to fall more than 50% year-on-year in April, following a 40% decline in March, Wood Mackenzie said.

China’s aviation regulator expects air passenger traffic to drop 77% during the May holiday this year from a year earlier.

“The market was expecting oil demand to pick up in early May, but right now even the most optimistic people would say spring won’t come until mid to late May,” said one. oil trader based in Shandong Independent Refining Center. Province.

However, more trucks are hitting the road as Beijing tries to ease logistical bottlenecks, but the numbers are still down from March.

An index compiled by Chinese fleet management company G7 showing the movement of fully laden trucks in China was at 87.72 on April 24, down from around 70 in early April but down from 131.31 in March.

In addition, port congestion is easing, with the average ship speed around the Yangtze River Delta improving from April 13 lows, according to data from Guojin Securities.

Chinese refiners are also expected to extend production cuts through May as margins have remained poor and fuel inventories are overflowing.

Sinopec, Asia’s biggest oil refiner, said operating rates at its plants had fallen to around 85% in recent weeks from 92.6% earlier this year and high product inventories had reduced its cash flow.

A manager at CNOOC’s 440,000 barrel per day (bpd) Huizhou refinery said the company was trying to maintain operating rates above 90% of capacity in May, but that could be difficult as sales of diesel stagnate.

Utilization rates at independent Shandong refiners were 51.61% on Wednesday, down from typical levels of 60% to 70%, according to data from consultancy JLC.

Still, consultancy FGE estimates crude throughput in China could recover slightly, up 200,000 to 300,000 bpd in May after falling 1 million bpd in April.

“However, we see downside risks if the demand recovery currently expected in May comes later or weaker than expected,” said FGE analyst Mia Geng.

“We cannot rule out the possibility that print runs will be flat on average or even slightly lower than April, given that product inventories are quite high at the moment and demand issues remain.”

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Reporting by Muyu Xu and Chen Aizhu; Editing by Florence Tan and Christian Schmollinger

Our standards: The Thomson Reuters Trust Principles.


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Felix J. Dixon