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No quick recovery for China oil demand as COVID battle grinds on

reuters.com · 04/29/2022 05:38
No quick recovery for China oil demand as COVID battle grinds on

By Muyu Xu and Chen Aizhu

- China's oil demand is expected to stay weak heading into May as COVID-19 lockdowns across the country curtail travel plans during the Labour Day holiday season, analysts and traders say.

Millions usually travel over the five-day holiday centred around May 1, typically bolstering fuel demand. However, forecasts from the country's aviation regulator and data firms show flights and car traffic are expected to decline, indicating lower gasoline and jet fuel demand.

This will add to a trend of falling fuel demand caused by the COVID restrictions in China, the world's biggest oil importer, that may impact the global crude market.

Demand for gasoline and jet fuel will remain under pressure in May because of the restrictions on city and provincial travel, said Yuwei Pei, an analyst at Wood Mackenzie.

This follows an expected drop in gasoline demand in April of 18% from a year earlier, after a 9% fall in March, according to Wood Mackenzie data.

Jet fuel consumption is set to plummet more than 50% year-on-year in April, after a 40% drop in March, Wood Mackenzie said.

China's aviation regulator expects passenger air traffic to fall 77% during this year's May holiday from a year earlier. nB9N2WD043

"The market was expecting a revival of oil demand in early May, but right now even the most optimistic people would say the spring will not arrive until mid- or late-May," said an oil trader based in the independent refining hub of Shandong province.

However, more trucks are hitting the road as Beijing tries to ease logistics bottlenecks but the numbers are still lower than March.

An index compiled by Chinese fleet management company G7 showing the movement of fully laden trucks in China was at 87.72 on April 24, up from around 70 in early April but down from 131.31 in March.

Also, port congestion is easing with the average speed of vessels around the Yangtze river delta improving from lows on April 13, Guojin Securities data showed.


RUN CUTS EXTENDED

Chinese refiners are also expected to extend run cuts into May as margins remained lacklustre and fuel stocks are brimming.

Sinopec, Asia's biggest oil refiner, said operating rates at its plants have fallen to around 85% in recent weeks from 92.6% earlier this year and high product stocks had squeezed its cash flows. nL3N2WB16Q

An official at CNOOC's 440,000 barrel-per-day (bpd) Huizhou refinery said the company is trying to maintain run rates above 90% of capacity in May but that could be difficult because diesel sales are stagnating.

Utilisation rates at independent refiners in Shandong were 51.61% as of Wednesday, compared to typical levels of 60%-70%, data from consultancy JLC showed.

Still, consultancy FGE estimates crude throughput in China could recover slightly, up 200,000 to 300,000 bpd in May following a 1 million bpd drop in April.

"However, we do see downside risks to runs if the demand recovery currently expected in May comes later or weaker than expected," said FGE analyst Mia Geng.

"We cannot rule out the possibility of runs averaging flat or even slightly lower than April, given that the product inventories are quite high now and demand concerns remain."



(Reporting by Muyu Xu and Chen Aizhu; Editing by Florence Tan and Christian Schmollinger)

((muyu.xu@thomsonreuters.com; +86 10 56692117;))