Chinese oil demand is almost at pre-crisis virus levels

May 20, 2020

Chinese demand for oil is almost at the levels last seen before Beijing imposed national isolation to combat the coronavirus outbreak, according to people with knowledge of the country’s energy sector operations.

China is the second largest consumer of oil in the world, behind the United States, and the country’s rapid recovery helped to reduce supply in the oil market earlier than expected. WTI oil, which was traded in negative territory a month ago, shot up on Monday and was even traded above $ 30 a barrel.

In an impressive turnaround after Chinese demand fell by around 20% when the country shut down in February, gasoline and diesel consumption has fully recovered with the reopening of factories and passengers who prefer to use the car instead of public transport, according to people who did not want to be identified.

Calculating the exact level of Chinese oil demand in real time is a difficult exercise, but executives and operators who monitor the country’s consumption said the volume is around 13 million barrels per day, just below 13.4 million barrels. daily barrels in May 2019 and 13.7 million barrels per day in December 2019. The total number would be higher were it not for the demand for jet fuel, which is still well below the level of a year ago, they said.

The International Energy Agency, which publishes supply and demand estimates, is much more pessimistic about Chinese consumption. In a report last week, the agency estimated that the Asian giant would consume less oil every month throughout this year than during the same period in 2019.

In the past few days, Chinese oil refineries have started a wave of barrel purchases in the physical market, which has helped price recovery. “The Chinese are buying everything they see ahead,” said an executive at a major trading company.

Prices for preferred oil types among Chinese refineries, which include Lula field, Djeno from the Republic of Congo and Oman, rebounded in May. A month ago, the Lula type was traded at a discount of about $ 6 a barrel compared to Brent. On Monday, a Chinese company bought a cargo with a premium of $ 1 to $ 1.50 a barrel compared to Brent, operators said.

“Demand for oil in China is starting to show optimistic signs of full recovery, led by diesel,” said Liu Yuntao, an analyst at London-based consultancy Energy Aspects.

The country’s independent refineries, known as tea pots, process oil at a record rate of almost 75% of capacity, well above the 60% of a year ago. The teapots have a combined refining capacity of around 4 million barrels per day, representing 25% of China’s total.

Sinopec, a state-owned giant that is the largest refinery in the country, with about 5.8 million barrels per day of capacity, also increases the amount of oil processed. PetroChina, which operates about 4 million barrels per day, has so far not raised rates to the same extent.

Source: Bloomberg, 5/19/2020

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