The rising Covid-19 case count in China has begun disrupting crude oil trade as it shutters some of the world's busiest ports.
Bloomberg reported earlier this week that the Ningbo-Zhoushan port, which is the world's third-busiest, remained closed, albeit partially, for a sixth day. Now some expect these closures to multiply.
"If we do see port closures increase in frequency and scale around China, that could really create some logistical headaches for oil traders and Chinese refiners," said Jay Maroo, Senior Market Analyst at trading and shipping market intelligence provider Vortexa.
"Chinese refiners are already feeling the impact of lower domestic fuel demand and will bear the brunt of lower product export quotas for the second half of this year. When you combine this with the risk of increased delays in receiving crude at major seaborn crude import hubs – such as Qingdao, Ningbo, and Zhoushan – there is a potential for a perfect storm."
This perfect storm could affect close to a third of Chinese oil imports, which means it has the potential to push prices even lower.
"Our data shows these top three Chinese port for crude oil imports received just under 3mn b/d for the first 7 months of this year, representing some 30% of China's total crude oil imports," Maroo noted. "On the other side of the equation, if we do see more widescale port closures around China's coastline, then the crude oil suppliers that will feel the biggest impact from this are Saudi Arabia, Iraq and Russia."
The wider implications of Chinese port closures involve further supply chain disruptions at a time when industries have not yet shaken off the earlier ones, further complicating economic recovery in some parts of the world. This, in turn, could also affect oil price movements, although how exactly remains to be seen.
By Irina Slav for Oilprice.com
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Furthermore, even if we assume hypothetically that imports from Saudi Arabia and Iraq would slow down as a result of a closure of some Chinese ports, Russian crude exports to China wouldn’t be affected as the bulk of exports is piped.
This continuous flow of negative news about China will neither detract from the fact that China is the driver of both the global economy and global oil demand nor will they adversely impact China’s crude imports. Chinese imports in 2021 will exceed the 2020 level and probably average higher than 12.0 mbd.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London