China’s Oil Demand Shows Signs of Recovery
Gasoline and diesel demand are set to increase YoY beginning in Q3 2020.
China’s oil demand will recover to 13 million B/D in Q2 2020—a 16.3% jump compared to this year’s first quarter, according to the latest analysis by Wood Mackenzie. And, WoodMac says, the country’s demand for gasoline and diesel are expected to increase year on year from Q3 2020 onward.
However, comparing year-on-year (YoY) statistics, Q2 2020 demand is approximately 2.5% below Q2 2019. The pace of recovery differs among oil products, according to the consultancy.
“Since April, the Chinese government has gradually lifted the coronavirus containment measures. Specifically, China is now easing restrictions on social, commercial, and travel activities,” said Wood Mackenzie Research Associate Yuwei Pei. “More people are returning to the office after a period of telecommuting. In addition, private car use is now seen as the safest mode of mobility, shifting passengers from public transport to private cars.”
As a result, gasoline demand is recovering quickly and is likely to return to last year’s levels by June. WoodMac estimates gasoline demand to reach 3.4 million B/D in Q2, just a 0.8% decline YoY. By the third quarter, China’s gasoline demand would have surpassed the same period last year by 3%, to 3.5 million B/D.
Diesel or gasoil demand is also recovering this quarter, supported by industrial and road freight activities. China’s demand is expected to reach 3.4 million B/D in Q2 2020, a 3% decline YoY. Courier delivery services are emerging as a major growth driver of road freight, reflecting a surge in e-commerce. This is reflected in demand turning green by 1.2%, to 3.4 million B/D in Q3 2020.
On the other hand, WoodMac predicts that China’s jet fuel demand will continue to fall for the rest of the year and expects an even larger YoY decline of 51% for demand in Q2 compared to Q1, to 0.4 million B/D. Air traffic remains weak because of restrictions on international flights and precautions taken by passengers to avoid crowded places. China’s aviation industry is also struggling financially as a result of the pandemic.
Overall, China’s oil demand is expected to rise a modest 2.3%, to 13.6 million B/D for the second half of 2020, compared to H2 2019.
Despite some pockets of recovery in oil demand for the rest of the year, Wood Mackenzie consultant Yujiao Lei warns of external risks that could set the country back. “China’s oil demand recovery trajectory will depend on how the pandemic pans out globally. Even if China avoids a second wave of infections, as long as the pandemic remains globally, the country will maintain strict border controls, thus restraining aviation,” she said. “Besides, the ongoing global economic downturn will likely have an adverse impact on China’s exports and investments, putting downward pressure on industrial and commercial transport activity.”