Instable China’s Oil Market Demand For This Reason

• Oil product demand may fall by 4% from original estimations
• Jet fuel, gasoil, gasoline most hit
• Analysts to observe government’s policy adjustment

A recent news article published in the Platts states that the China’s March oil product demand under pressure as cities face lockdowns.

Downward pressure

China’s oil product demand was under downward pressure in March as the spread of omicron variant has caused short-term lockdowns in several cities, analysts said on March 14.

City councils of Shenzhen and Dongguan have announced lockdowns in the two manufacturing hubs in southern China during March 14-20, following the Changchun in the northeast. This is expected to lead to another slowdown in energy consumption, following Winter Olympics.

Shenzhen was China’s third-biggest GDP contributor in 2021, following the capital city Beijing and financial center Shanghai, while Dongguan ranked twenty-third.

Sources in Shenzhen and Dongguan told S&P Global Platts Commodity Insights that the government had banned inter-city transports and shut factories in the industrial parks.

“We are downward adjusting our demand estimation for China while observing the pandemic situation and the government’s corresponding measures,” said Sun Jianan, an analyst with S&P Global Commodity Insights’ Platts Analytics.

Analysts from Beijing, Shenzhen and Guangzhou supported the lower demand outlook, with some of them expecting about a 4% cut in oil product demand from their original projection.

Estimation of China’s oil demand

Platts Analytics previously estimated China’s oil demand at 15.8 million b/d in March, rising about 9% from February as economic activities normally resume from Lunar New Year Holiday and Winter Olympics, according to its monthly report dated March 9.

In addition to jet fuel, lockdowns are expected to dampen gasoil demand for shipping industrial products and gasoline for urban transportation.

“When lockdown is ended, we expect demand will recover a bit for gasoil and gasoline. People would prefer to drive for urban trips rather than public transportation to limit coronavirus exposures,” a fuel trader with PetroChina said.

“Foreign studies told us that omicron spreads fast but not that deadly. Beijing may learn from this wave and adjust their strategy, as the zero-COVID approach does hurt economy. So that this week is very crucial” a Beijing-based analyst said.

There has been a sign that China would likely gradually relax coronavirus restrictions later this year to boost economic growth instead of the zero-tolerance approach as deaths due to omicron variant were less compared with the previous variants of coronavirus.

Minimize impacts on economy and livelihood

Some first-tier cities, such as Shanghai, Shenzhen, and Guangzhou, had adopted approaches under which lockdowns targeted blocks accurately to minimize impacts on economy and livelihood.

However, the government tightened control again during the weekend amid a spike in confirmed cases in the mainland.

China’s confirmed cases stood at 1,437 on March 13, surging 339% from 327 cases a week earlier on March 6, according to data from the National Health Commission.