China’s efforts to keep people from travelling for Chinese New Year because of several clusters of COVID-19 infections are forcing analysts to revise first-quarter fuel demand estimates, but are not expected to derail its post-pandemic recovery.
China’s Ministry of Transport has said passenger trips during the 40-day spring travel season could be down by 40% from the pre-pandemic levels of 2019. That has led analysts to cut forecasts for first-quarter oil demand by as much as 400,000 barrels per day (bpd) on the assumption this means less gasoline and jet fuel will be consumed.
It also likely points to a quarter-on-quarter drop in China’s oil use, according to the International Energy Agency, the first since demand bounced quickly back from last year’s pandemic-induced contraction. But it won’t undo the resurgence in oil consumption and growth over the second half of 2020.
China’s first-quarter oil consumption is still expected to be up 2 million to 3 million bpd over the same quarter last year, said analysts with Energy Aspects, IHS Markit and Wood Mackenzie.
“We believe a cooldown during the (Lunar New Year) may prove to be a healthy reset for stronger rebound in Q2 21, when China can go full steam on economic growth without being stretched by wider-scale virus outbreaks,” said Energy Aspects’ China analyst, Yuntao Liu.
Gasoline and jet fuel are expected to take the biggest hit over the travel period, analysts said, while diesel and other industrial fuels are expected to buck the trend as migrant workers stay put in major cities, allowing factories and construction sites to resume work quickly after the holidays.
Along with industrial fuels, petrochemical feedstocks including naphtha and liquefied petroleum gas (LPG) will remain “bright spots”, said Fenglei Shi, an associate director at IHS Markit.
Chinese independent refiners, which account for about 20% of the country’s crude imports, are wary of the slowing fuel consumption and have cut crude purchases for March delivery, trade sources said.
Rystad Energy sees “a downside risk to China’s crude runs due to a new outbreak and reduced demand,” said analyst Simen Eliassen, warning of further risk to fuel demand if the virus gets out of control and the government maintains its travel restrictions longer than expected.
A travel index published by IT firm Baidu and based on GPS data from clients using its mapping app shows that pre-holiday traveller numbers are down by more than half so far from 2019.
Flight bookings as of Jan. 19 for Chinese New Year travel have also plunged 73.7% compared with a year ago, according to travel analytics firm ForwardKeys.
“We expect total fuel demand to accelerate the growth after restrictions are eased,” Woodmac analyst Yuwei Pei said, adding that second-quarter demand this year could grow by 900,000 bpd versus the same quarter in 2019.
By Muyu Xu in Beijing and Florence Tan