Chinese oil demand is bouncing back at lightspeed
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China’s oil demand is showing signs of recovery and could jump 16.3 per cent in the second quarter over the previous quarter to 13 million barrels per day (MMbpd).
While this is still down by about 2.5 per cent from the same period in 2019, it highlights the recovery that the Chinese economy is undergoing as the government relaxes restrictions.
“Since April, the Chinese government has gradually lifted the coronavirus containment measures. Specifically, China is now easing restrictions on social, commercial and travel activities,” Wood Mackenzie research associate Yuwei Pei said.
“More people are returning to the office after a period of telecommuting. In addition, private car use is now seen as the safest mode of mobility, shifting passengers from public transport to private cars.”
This shift towards automobiles has already led to a rapid recovery in gasoline demand with the global consultancy expecting it to return to last year’s levels by June 2020.
Gasoline demand is expected to hit 3.4MMbpd in the second quarter, just 0.8 per cent lower year-on-year. Demand in the third quarter is expected to hit 3.5MMbpd, a 3 per cent increase over the same period the previous year.
Industrial and road freight activities are also helping diesel demand to recover to 3.4MMbpd, a 3 per cent decline year-on-year.
However, China’s jet fuel demand will continue to fall for the rest of the year with Woodmac expecting a 51 per cent year-on-year decline in the second quarter due to restrictions on international flights and precautions taken by passengers to avoid crowded places.
Overall oil demand is expected to rise by 2.3 per cent to 13.6MMbpd in the second half of 2020 compared to the second half of 2019.
“China’s oil demand recovery trajectory will depend on how the pandemic pans out globally. Even if China avoids a second wave of infections, as long as the pandemic remains globally, the country will maintain strict border controls, thus restraining aviation,” Woodmac consultant Yujiao Lei warned.
“Besides, the ongoing global economic downturn will likely have an adverse impact on China’s exports and investments, putting downward pressure on industrial and commercial transport activity.”
More broadly, the International Energy Agency (IEA) believes that the world has yet to see peak oil demand with global oil consumption expected to return to pre-pandemic levels and more.
“In the absence of strong government policies, a sustained economic recovery and low oil prices are likely to take global oil demand back to where it was, and beyond,” IEA executive director Fatih Birol told Bloomberg.