Fresh challenge to Asian oil demand as Omicron cuts traffic

Singapore

ROAD traffic has thinned across Asia at the start of the year as the highly contagious Omicron variant of the coronavirus sweeps through the region, flashing a bearish signal for oil demand.

Fewer vehicles have transited through most capital cities so far this month than in December, showed mobility data from Apple, as authorities renew restrictions to curb the spread of the virus. Omicron recently breached China's tough Covid defenses, prompting Goldman Sachs Group to reduce its 2022 growth forecast for the nation. Flight cancellations are also mounting in Asia.

While the outlook looks bleak, Omicron so far has not had a big impact on the oil market. Headline crude prices have maintained an upward trend, and while profit margins from making petrol in Asia have softened since mid-December, they are still more than double compared with a year earlier. Omicron's emergence in China - the world's biggest crude importer - is the biggest concern for the market. The variant recently spread to the major port city of Dalian following the lockdown of Anyang, a city of 5 million people. The nation is also battling an outbreak of the Delta variant in Xi'an.

While Apple does not provide data on China, local provider Baidu showed that road congestion in Xi'an was 39 per cent lower on Jan 11 compared with a year earlier. In Beijing, congestion was up 16 per cent over the same period.

In India, restrictions have been reinstated in the capital as infections surge, although the federal government has avoided instituting nationwide curbs. Average driving activity over the first 10 days of January was 61 percentage points lower than in December, said Apple, which counts the number of requests made to Apple Maps for directions to calculate mobility.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Fewer cars are traversing roads in other regional capitals such as Tokyo, Manila and Kuala Lumpur, showed Apple data. The only outlier was Vietnam's Ho Chi Minh, which has so far recorded an uptick in traffic.

Omicron has turbo-charged the infection rate, leading to curbs on air travel globally. China has blocked some flights from the US, while the Philippines and Hong Kong cancelled fixtures to stem the spread. Worldwide commercial flights over the 7 days ended Jan 9 were about 17 per cent and 21 per cent below the same periods of 2019 and 2020, respectively, said FlightRadar24.

The cancellations have led to a reduction in jet fuel demand estimates for Asia from BloombergNEF over the first 6 months of 2022. While air travel is expected to be weak over the first quarter, emerging data pointing to Omicron being less severe presents a strong case for the easing of restrictions and renewed travel in the coming quarters, said Fitch Solutions. BLOOMBERG