How is China's Recovery Driving Oil Demand?

As the Chinese economy starts to emerge from the depths of the coronavirus lockdown, oil producers are experiencing a spike in demand. The pandemic temporarily crippled the Chinese economy though over the past month the People’s Republic has started to ramp up activity, with oil demand now recovered to over 90% of its pre-coronavirus levels.

Industry analysts are hopeful the trend could be mirrored in other countries slowly relaxing lockdown measures. As well as lifted travel restrictions, government stimulus packages designed to bolster economies could help push up worldwide oil demand in the last six months of 2020.  

Analysts hope for upward trend

Jim Burkhard, vice president and head of oil markets at IHS Markit says the Chinese recovery implies a positive outlook for the oil and gas industry as a whole. “The brisk resumption of Chinese oil demand, 90% of pre-COVID levels by the end of April and moving higher, is a welcome signpost for the global economy,” he says. “When you consider that oil demand in China - the first country impacted by the virus - had fallen by more than 40% in February - the degree to which it is snapping back offers reason for some optimism about economic and demand recovery trends in other markets such as Europe and North America,” he adds.

Sri Paravaikkarasu, an analyst at preeminent energy consultancy group FGE agrees, saying “China has led the demand recovery path so far.” She adds that in countries such as Australia, Vietnam and South Korea where COVID-19 cases are largely under control, a quick recovery in petroleum demand is also likely.

Hopes for swift price recovery

As well as demand, a price recovery is also on the radar of oil executives. By mid-April, the global coronavirus pandemic had slashed oil prices by around 70% and even forced WTI into negative territory for the first time in history. Now, benchmark oil prices are starting to bounce back, and China is at the forefront of the recovery. In the second half of 2020, Wood Mackenzie predicts Chinese oil consumption will grow to 13.6 million barrels per day (bpd), marking a 2.3% on last year’s figures.

“By the third quarter, China’s gasoline demand would have surpassed the same period last year by 3% to 3.5 million bpd,” reads a statement issued by the global consultancy group. Over the same period, Wood Mackenzie analysts expect to see a 1.2% increase in diesel demand.

While some outlooks are positive, others warn there could be turbulence ahead. In its May report, the International Energy Agency (IEA) predicted a 5% drop in Chinese oil demand in the second half of 2020, which could severely damage hopes of a swift recovery.

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