China’s oil demand set to recover as Covid curbs ease

CHINA’S economy is recovering from a trough hit in the second quarter, with oil demand expected to rebound next year as Beijing eases Covid-19 restrictions, senior Chinese refining executives said on Wednesday (Sep 28).

The recovery will come on the back of an expected contraction in oil demand in the world’s biggest energy consumer in 2022, the first in 2 decades, as China’s zero-Covid policy ravaged its economy and restricted movements.

“This year we have seen the decline of imports of crude oil, first time in many, many years in China,” Chen Hongbing, deputy general manager at Rongsheng Petrochemical, told a forum at the 38th Annual Asia Pacific Petroleum Conference (APPEC).

“We have seen output of petrol and jet fuel is down but the output for diesel is actually up and demand is still healthy,” he said, adding that China’s diesel inventories are currently low.

Beijing is expected roll out more measures to shore up its economy, with a focus on reviving consumption and boosting investment, while easing strict measures to contain the spread of Covid-19 infections.

“We look at high frequency data like airlines bookings, road congestion, consumption, and we see a little better activity in China,” Wu Qiunan, chief economist at PetroChina International said, pointing to better demand growth in the fourth quarter versus the third.

Easing mobility restrictions could lift petrol consumption next year although strong electric vehicle (EV) sales, which hit 6 million units in the first 8 months this year, will affect growth in the motor fuel, he added.

“That’s a big replacement of petrol consumption,” he said, adding this may lower petrol demand growth even as consumption is expected to recover when China eases Covid-19 restrictions.

Both executives also expect jet fuel to recover with aviation demand.

However, the recovery in aviation fuel demand may take longer than other fuels because of difficulties in international travel, Rongsheng’s Chen said.

As for fuel exports, the executives said export economics will determine the volume of oil products Chinese refiners ship abroad.

“Even if the government says (refiners) can have the quota to export, they will wait and see when to export, when is the right time,” PetroChina’s Wu said.

Chinese refiners are expecting Beijing to release up to 15 million tonnes worth of oil product export quotas for the rest of the year to support sagging exports in the world’s second-largest economy.

For petrochemical production, China has also become more cost competitive than Europe where electricity prices have surged following a disruption in natural gas supplies from Russia in the wake of the Ukraine war, Sun Xin, director of China’s privately-owned Shenghong Petrochemical said.

“Because of the Ukraine war, the industrial power consumption cost between China and Europe has widened and the gap has been as large as half a US dollar per kilowatt hour at 1 point,” Sun said.

“The basic production cost for raw materials such as ethylene is way below that of Europe’s and I believe this could be in the range of US$1,200-US$1,300 per tonne.” REUTERS