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

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Quiet Roads In China Are Concern For Oil Markets

Traffic congestion in Beijing has declined by 30 percent over the past week, and is falling in other parts of the country as well, as the spread of a new coronavirus variant gains traction, threatening the outlook for oil demand, Bloomberg reports.

There have been multiple outbreaks across the country, and the situation remains uncertain, Vice-premier Sun Chunlan said earlier this week, as quoted by state news agency Xinhua.

As with the previous outbreak, which China stifled with a complete lockdown, the rise in infections is affecting movement and, consequently, fuel use.

“For those provinces and regions with severe cases, such as Jiangsu, we will see a hit in gasoline and diesel demand,” Bloomberg quoted one ICIS analyst as saying.

Jet fuel demand will also suffer as the authorities suspend flights to stem the spread of the new coronavirus variant. Some bus, taxi, and ride-hailing services are also being suspended in some Chinese regions, adding to the negative effect on demand.

“This round of infection could potentially wipe out 5% of short-term oil demand,” a researcher from CNPC’s Economics and Technology Research Institute told Bloomberg.

A five-percent decline in oil demand will have a fast and sizeable effect on prices, especially as it couples with resurgence of the coronavirus in other key markets, notably the United States.

Oil has already retreated from highs hit earlier this year on the strong demand rebound and supply constraints. At the time of writing, Brent crude was trading at a little above $70 per barrel, down by some $6 since the end of July. West Texas Intermediate was trading at some $68 per barrel, down by about $5 since the start of the month.

China’s fast action on curbing the spread of the virus would affect oil demand, but the effect is likely to be short-lived if the curb is successful. In fact, according to one analyst cited by Bloomberg, demand for fuels could rebound as soon as September.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on August 05 2021 said:
    If during the height of the pandemic in 2020 and without the availability of vaccines, China managed with draconian measures to exit the lockdown earlier than any country in the world and ended the year importing on average 11.67 million barrels a day (mbd) or 14% higher than 2019, is it possible that an outbreak of a new coronavirus variant here and there could threaten the outlook for global oil demand?

    This isn’t going to happen given that China’s economy is growing this year at 8.3%, the highest among the world’s major economies and the global economy is also growing this year at 6.3%, or more than double its growth rate in 2019 at a time when vaccines are readily available in China and the world.

    And while there are concerns about a resurgence of the pandemic cases, I don’t buy the claim that this could wipe out 5% of oil demand.

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

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