World’s Largest Economies Surpass Pre-Covid Oil Demand

Through Bloomberg News to 9/9/2021

(Bloomberg) – Some of the world’s largest economies are seeing oil consumption take a turn and even surpass pre-pandemic levels as falling Covid-19 infection rates lead to a resumption of activity.

Oil demand in China, the world’s largest energy consumer, will be 13% higher in the next quarter than in the same period in 2019 before the pandemic, according to SIA Energy. Indian fuel sales continued to rebound last month, while US consumption of petroleum products just hit an all-time high. Europe also just had its best August for gasoline demand in 10 years, IHS Markit said.

Improving consumption in major economies is supporting oil prices which have risen by around 40% this year. Against this backdrop, the OPEC + alliance decided to continue restoring crude supplies at the start of the month, citing tighter balances at the end of the year.

“The worst for fuel demand in Asia is over and we are seeing a slight recovery in oil demand in the coming months,” said Sengyick Tee, analyst at the Beijing-based SIA. China’s overall oil consumption will be driven by a more than 20% increase in gasoline consumption in the next quarter compared to 2019, he said.

While fuel is fueling the recovery as people hit the road after months of lockdowns, the picture for other petroleum products is not so positive. Jet fuel consumption is still languishing due to the lack of international air travel. Indian diesel usage is on the decline due to seasonal factors, although SIA Energy sees fuel demand in China increase by 4% in the next quarter compared to 2019.

Trucking and construction activity generally declines in India from June to September due to the monsoon. This weighs on demand for diesel, the country’s most popular fuel, before it spikes up towards the end of the year amid harvests and festivals.

“Gasoline sales volume has already surpassed pre-Covid levels, diesel is expected to hit within the next two to three months,” said Shrikant Madhav Vaidya, chairman of Indian Oil Corp., the largest refiner of the country.

Acceleration of refining

Indian processors will have “limited upside potential” for run rate increases this month as they struggle to deal with excess diesel produced from the gasoline manufacturing process, a said Senthil Kumaran, head of oil in South Asia at industrial consultant FGE. A turning point could come around October, with cycles potentially exceeding 5 million barrels per day by the end of the year, he said.

Chinese execution rates edged up, with state-owned Sinopec refining the most crude in 11 months in August, according to data from local consultancy SCI99. However, the activity of private refiners in Shandong Province is only just over 70% amid a government crackdown on the sector.

Yet with some of Asia’s largest economies reporting tens of thousands of viral infections a day, some threats to energy demand persist even as the region rushes to vaccinate its people.

“The risk of resurgence is a concern that we have built into our outlook, especially for populated countries like India and Indonesia,” said Qiaoling Chen, analyst at energy consultancy Wood Mackenzie Ltd. “For now, the worst for oil demand in Asia is over, but downside risks persist.

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Felix J. Dixon