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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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China's Oil Demand Growth Threatened By Latest Covid Outbreak

  • "explosive" outbreak of COVID in Beijing is the reason behind the latest lockdowns.
  • Uptick in crude exports in May may not be representative of actual demand numbers.
  • Last week, a return to lockdowns in Shanghai weighed on oil prices.
Coronavirus

Just as China was returning to business as usual after the latest string of lockdowns, an "explosive" outbreak in a Beijing district could derail this.

"The recent outbreak ... is strongly explosive in nature and widespread in scope," said a spokesperson for the Beijing municipal government over the weekend, as quoted by Reuters.

The outbreak has not been particularly large in terms of numbers, with 166 cases identified so far, but China's zero-Covid policy makes restrictions likely as the country seeks to minimize infections. Mass testing has been planned for this week in the district where the outbreak happened.

Last week, a return to lockdowns in Shanghai weighed on oil prices, suggesting it may be a while yet before the Chinese economy returns to normal. On the flip side, news that China's oil imports in May were 12 percent higher than a year earlier could potentially lend support to prices, although they may not be indicative of an actual demand increase.

"This does not indicate that oil demand is picking up. Instead, China is likely to have acted opportunistically, buying crude oil from Russia at a significantly lower price than the global market level in order to replenish its stocks," Karsten Frisch from Commerzbank told Reuters last week.

The Chinese authorities remain wary of a further spread, meanwhile.

"At present, the risk of a further spread still exists. The most urgent task at the moment is to trace the source of the cluster and also manage and control the risks," the Beijing city government spokesman, Xu Hejian, told media, as quoted by Reuters.

If a further infection spread does take place, it would probably have a negative effect on oil prices, providing such urgently needed relief, although just how pronounced this effect would be remains an open question amid tight global supply and little chance of meaningful production growth anywhere.

By Irina Slav for Oilprice.com

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