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Breaking News:

Oil Prices Gain 2% on Tightening Supply

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Outlook For China Oil Demand Darkens

  • Extended lockdown in Shanghai weighs on crude oil demand.
  • Chinese demand is expected to have fallen between 1.2 and 1.3 million bpd.
  • Half of the lost demand is in the form of jet fuel.
Barrels

The outlook for crude oil demand in the world’s second-largest consumer is dimmed amid the continued increase in Covid-19 cases and the extended lockdown in Shanghai, where daily cases have topped 2,000.

Because of the movement restrictions put in place to rein in the spread of the virus and because of the lockdown, China’s oil demand is already lower, having shed an estimated 1.2 to 1.3 million barrels daily, according to data from energy consultancy FGE cited by Bloomberg.

Half of the lost demand is in the form of jet fuel, the data shows.

Before the latest outbreak of the coronavirus, China’s daily demand averaged 13.7 million barrels daily in both January and February, the report noted.

“The full lockdown in Shanghai and the severity of the situation there is a little unexpected,” an FGE analyst told Bloomberg, adding that even if the lockdown in Shanghai ended, but half a million barrels in daily oil demand will remain at risk of new restrictions in other parts of the country.

News about Covid outbreaks in China has spooked oil markets several times over the past two years, given the country’s heavy reliance on imported oil. The first signs of alarm this time around appeared in March when a traffic decline of 36 percent was reported for Shanghai in mid-March, while traffic levels in Shenzhen were down by 26 percent.

The reason for the oil market reaction, which has invariably been a sharp dip in prices, is Beijing’s zero-covid policy, which rests on immediate lockdowns to stem the spread of the disease.

These lockdowns, in turn, affect oil consumption and, apparently, scare oil traders. In March, the authorities locked down Shenzhen, a city of 17.5 million, and oil prices immediately dropped. This week prices also dropped, although this time, there was a strong additional tailwind factor of reserve release announcements.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on April 08 2022 said:
    I tend to cast doubts on the claim that China’s crude oil demand may have fallen by 1.2-1.3 million barrels a day (mbd) as a result of the lockdown in Shanghai.

    The reason is that even during the height of the pandemic in 2020 and stricter and more widespread lockdowns in parts of China, , China’s oil demand kept rising in 2020.

    China's economy was the only major economy that grew in 2020 rising by 2.3%.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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