The reemergence of COVID-19 cases in Beijing is expected to dampen oil demand as flights are canceled, schools shut and neighborhood lockdowns initiated, but the extent of demand destruction for both oil and gas will depend on how swiftly the government is able to contain the spread and which sectors are most seriously impacted. For now, the measures taken by the government seem moderate, but effective.
Some provinces are tightening checks on people and vehicles from Beijing, but no stricter measures are implemented at the national level, S&P Global Platts said in a report June 16. The negative impact on China’s oil demand is minimal for now and the government’s quick response should be reassuring for the LNG market, as the prospect of another COVID-19 lockdown in China would have a significant negative global impact, the report said.
The reemergence of the virus will pull down China’s gasoline demand by 2% in June from previously forecast for the month, as the capital city has the most dense traffic in the country, and gasoil demand is estimated to fall by 0.8% as some construction work is suspended and there is less transportation of goods due to quarantine measures, a Beijing-based analyst said.
China’s gasoline demand had been expected to recover to about 3.4 million b/d in June from a bottom of 2.3 million b/d in February, while gasoil demand had been expected to hit 3.6 million b/d this month from 2.9 million b/d in February, according to the analyst.
The Xinfadi wholesale market, the origin of the latest cluster, is Beijing’s largest vegetable supply base and provides 90% of the city’s vegetables and fruits, according to a report by Nomura. On June 13, the Xinfadi market and six other wholesale food markets were shutdown.
“We estimate China’s jet fuel demand to go down 5% from the previous estimate for June as more flights are canceled to and from Beijing,” a second Beijing-based analyst said.
Jet fuel demand in Beijing accounts for 10% of China’s total consumption of the fuel, which was about 980,000 b/d in 2019.
China in early June eased flight restrictions on foreign airlines and increased the frequency of its domestic flights. This lent limited support to jet fuel demand, which was previously expected to recover to about 440,000 b/d in June from about 350,000 b/d in May, but it was still far below the level of about 1 million b/d in June 2019, the second analyst said.
Oil price has been a puppet in the hands of COVID-19 since the start of the year. A reemergence of cases across the world as lockdown measures are eased underscores that demand recovery will come in fits and starts at best.