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Why The Future Of Oil Rests On China

The pace of oil demand recovery in China and the entire world could be shaped by China's top policy-setting meetings, which begin on Friday to chart the course for the Chinese economy hit by the coronavirus pandemic.

The National People's Congress (NPC), the most important policy-setting annual event in the Communist country, is expected to decide what stimulus to inject into the economy after it markedly slowed during the COVID-19 pandemic. Many of the potential decisions for supporting infrastructure and railroads and other commodity-intensive sectors could drive up China's demand for crude oil, fuels, and other commodities, including steel and copper, according to Bloomberg News.

Spending on priority areas such as technology, transportation, and power infrastructure could reach US$205 billion in 2020, BNEF said in a report last week.

If China boosts stimulus for the economy - which shrank by 6.8 percent in Q1 during the outbreak in the country - industrial activity could pick up the pace and require more oil products such as diesel, for example.

China has already supported its economy, but the annual meeting of the NPC is expected to announce further stimulus, especially given the high rate of unemployment. It will also unveil targets for economic growth this year.

In April, the Chinese economy showed signs of modest recovery from the lows earlier this year. Industrial output, for example, recorded its first increase in 2020, data from the National Bureau of Statistics and Caixin Global showed.

Oil demand in the world's top oil importer, China, has rebounded to nearly pre-coronavirus levels, Bloomberg reported on Monday, citing sources with inside knowledge of China's energy sector.

In addition, Chinese refineries increased their run rates by 11 percent in April as the country began to emerge from the months-long lockdown. At 13.1 million bpd, the April refinery run rates were also higher than the average for April 2019.   

By Tsvetana Paraskova for Oilprice.com

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Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More