China oil demand may shrink first time since 2002 as covid curbs bite

Hundreds of millions of Chinese who typically hit the roads and domestic flights during the Mid-Autumn Festival - falling on Sept. 10 this year - and early October's Golden Week holidays are expected to stay home to avoid being ensnared by sudden lockdowns to curb the spread of COVID-19.

Lockdowns in key cities such as financial hub Shanghai already hurt China's oil demand in the second quarter while recovery for the rest of the year is expected to be slow as China sticks to its zero-COVID policy. This could cap intake of the world's top crude oil importer and dent global oil prices.

China's demand for gasoline, diesel and jet fuel could fall by 380,000 barrels per day (bpd) to 8.09 million bpd in 2022, which would be the first contraction since 2002, said Sun Jianan, an analyst from Energy Aspects, calling it a ‘watershed moment". In comparison, demand rose 450,000 bpd, or 5.6%, in 2021.

As of Aug. 31, bookings for domestic air travel during the holiday are 38.5% lower than 2021, data tracked by ForwardKeys showed, while flight bookings for Golden Week travel are expected to fall by 23.8% from last year.

Road traffic in the southwestern city of Chengdu, which has extended its COVID lockdown, is down 50% this week from a year earlier, according to Baidu data.

In the fourth quarter, gasoline, diesel and jet fuel demand are expected to increase by about 530,000 bpd from the third quarter to 8.55 million bpd, Energy Aspect's Sun said, adding that demand could fall further if COVID cases increase.

For aviation fuel, demand of about 500,000 bpd is less than half of the 1.1 million to 1.2 million bpd in pre-pandemic days, said Mukesh Sadhav, head of downstream and oil trading at consultancy Rystad Energy.