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China is fighting the worst Covid outbreak since 2020, and analysts are considering a revision of their oil demand forecasts as refineries reduce run rates and lockdowns hurt consumption.
According to Bloomberg, because of the outbreak and the lockdowns following it, some independent refiners—commonly known as teapots—were forced to resell oil cargos they had ordered. The lockdowns have reduced traffic in some cities as well as air travel, prompting refiners to reduce processing rates, the report also said.
Yet the repercussions of the outbreak go beyond refineries. The Wall Street Journal reported that factories in areas that have gone under lockdown would not be able to keep up manufacturing rates, potentially exacerbating an already existing shortage and extending the global economy’s uncertain path to post-pandemic recovery.
Even before the lockdowns, many economies were struggling to return to growth, but now their immediate future has become even more uncertain.
“That’s the new wrinkle in the story that we’re grappling with,” the WSJ quoted the chief economist of JP Morgan, Bruce Kasman, as saying. “Right now I don’t want to think too much about where we’re going to be six or nine months from now because there are too many moving parts,” he also said.
According to Michal Meidan from the Oxford Institute for Energy Studies, China’s oil imports are about to decline due to the lockdowns. Instead, she said, refiners would lean on stockpiles.
Oil price forecasts, however, remain bullish for the most part, although Goldman Sachs revised down its forecast for Brent crude and Chinese consumption during the second quarter of the year. At the FT Commodities Global Summit this week, analysts seemed in agreement that oil prices were going to go higher, even much higher, with some seeing $200 and even $250 per barrel of Brent in the future.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.