How lifting of quarantine in China will increase oil consumption
2022.12.13 12:41
How lifting of quarantine in China will increase oil consumption
Budrigannews.com – As domestic and international travel pick up, China’s abandonment of a lockdown-based coronavirus suppression strategy will eventually result in an increase in oil consumption of more than 1 million barrels per day (bpd).
However, the nation will first have to deal with a massive outbreak that will disrupt travel and economic activity and reduce oil consumption in the short term.
The J-curve effect of exiting lockdowns is likely to occur, with lower oil consumption and prices in the first quarter of 2023 but higher consumption and prices later in the year.
Passenger travel within China and to destinations outside the country has been severely affected by strict lockdowns and quarantines since the first quarter of 2020.
When compared to the same period in 2019, the number of passengers carried on all modes of transportation decreased by 67% in the first ten months of 2022.
When compared to prior to the pandemic, the number of passengers transported by road (-82%), air (-63%), and rail (-52%) significantly decreased.
When the total distance traveled (in passenger kilometers) was taken into account, there were similar decreases in the demand for transportation.
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As limitations on development are facilitated, be that as it may, travel request will ultimately bounce back as quite a bit of this business and relaxation travel resumes.
Data from the National Bureau of Statistics (NBS) indicate that in the first ten months of 2022, China’s refineries processed approximately 13.4 million barrels per day (b/d) of crude.
However, crude processing was down almost -1.8 million b/d when compared to a forecast of the five-year trend from 2015 to 2019 prior to the pandemic.
This is a harsh proportion of utilization lost to the scourge and lockdowns, some of which will be reestablished as the economy restarts.
The return to flying is likely to have a particularly significant impact because passenger aviation is by far the most fuel-intensive mode of transportation.
In the first ten months of 2022, China’s refineries produced approximately 0.6 million barrels per day of jet fuel and other kerosene, down from 1.1 million barrels per day in 2019.
If aviation resumes its pre-pandemic pattern, fuel consumption could rise by 0.5 million b/d or even 0.6 million b/d.
Oil consumption would also rise as long-distance and intra-urban highway and rail travel was resumed, as would a recovery in the weak manufacturing and construction industries.
As travel restrictions ease and manufacturing picks up, China’s total consumption is expected to rise by at least 1.0 million b/d by the end of 2023.
But first, China is likely to see a huge outbreak of infections as people leave the country. This will make it harder to travel or do other business, and families will avoid social situations and the risk of getting the virus on their own.
In the event that the exit wave is completely unmanaged, it is likely to quickly sweep through the population in two to four months, causing severe disruptions to activity and fuel consumption in January and February and overwhelming health services.
The recent decline in oil prices and the transition from backwardation to contango in futures markets are consistent with a J-curve of weak consumption during an exit wave followed by a strong rebound later in 2023. If the government chooses to retain some controls to slow the wave and moderate the peak, the wave could spread over 3-6 months, with less disruption but prolonging it into April or May.
By the end of 2023, there won’t be enough spare crude production capacity to meet an additional 1 million barrels per day or more of China’s demand, and global petroleum inventories are already low.
Limits on OPEC+ output, sanctions imposed as a result of Russia’s invasion of Ukraine, and a lack of shale growth in the United States continue to limit crude supply.
China’s lockdowns and assembling lull have eased the heat off worldwide stock chains for oil and different items in the final part of 2022.
However, China’s resumption of growth will increase the pressure on oil and other supply chains once the exit wave has passed.
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Oil and other energy markets are likely to tighten as a result of China’s reopening, which will likely result in renewed upward pressure on prices later in 2023, unless there is a global recession.
Just as North American and European central banks are hoping that inflation will return to a more manageable level, China’s re-opening could ensure that it continues to rise globally.
To ensure that there is sufficient slack in supply chains to accommodate the additional demand from China, reopening will necessitate that central banks maintain higher interest rates for an extended period of time.
