Commodities News

China’s Oil Demand Outlook Worsening as Virus Outbreak Persists

(Bloomberg) — China’s worsening Covid-19 outbreak and the extended lockdown in Shanghai has oil analysts cutting their demand forecasts further. 

The commercial hub’s staggered eight-day lockdown that was supposed to end earlier this week is still going, with record case numbers topping 20,000 on Thursday. Traffic congestion levels at peak hours are 40% lower than a year ago, data from Baidu Inc (NASDAQ:BIDU). show, while the movement restrictions and virus testing means truckers can’t get to the docks.

The continued rise in cases in Shanghai despite the lockdown underscores the challenge China is facing in trying to maintain its Covid Zero strategy in the face of the highly infectious omicron variant. Restrictions on movement are being rolled out in an increasing number of cities across the country. 

See also: Shanghai Lockdown Risks Becoming Biggest Crisis of Xi’s Tenure

The measures have knocked out 1.2 million to 1.3 million barrels a day of Chinese transport fuel demand, with jet fuel accounting for around half of that, according to FGE. That’s the second downward revision the industry consultant has made in the last few weeks. China’s apparent oil demand averaged around 13.7 million barrels a day in January and February before the current virus outbreak, Bloomberg calculations based on official data show.  

“The full lockdown in Shanghai and the severity of the situation there is a little unexpected,” said Mia Geng, an analyst at FGE in Singapore. Even if the Shanghai outbreak ends, there will still be 500,000 barrels a day of fuel demand at constant risk due to the possibility of restrictions in other parts of the country, she said. 

Long-distance travel within China is suffering as caution reigns, even in areas where there have not been outbreaks. There were 26% fewer trips over the Tomb Sweeping Festival from April 3 and 5 than last year, Ministry of Culture and Tourism data show.

No more than 10% of flights planned in and out of Shanghai’s two main airports were completed on Thursday, according to VariFlight, a Chinese aviation data provider.   

Wood Mackenzie Ltd. is forecasting the current wave of virus and lockdown measures will result in gasoline and jet fuel demand falling by 750,000 barrels a day in March and 600,000 barrels a day in April. The weakened consumption could persist through May, said consultant Yuwei Pei.

©2022 Bloomberg L.P.


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