China’s oil demand has continued a sharp rising trend since passing the nadir in February. After dropping in February by over 40 percent compared with a year earlier, the country’s oil demand for April reached 89% of the April 2019 level (approximately 12.7 million barrels per day versus 14.3 MMb/d) of the same period last year as lockdown measures are lifted and personal mobility and economic activities resume.
IHS Markit said it expects demand to reach 92% of the prior year level in May.
“The brisk resumption of Chinese oil demand, 90 percent of pre-COVID levels by the end of April and moving higher, is a welcome signpost for the global economy. 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.” – Jim Burkhard, IHS Markit Vice President and Head of Oil Markit stated.
Several indicators of demand registered sharp spikes in April, with some returning to pre-COVID levels.
Car sales, the resumption of work for large industrial enterprises and freight turnover all returned to near-or-at prior year levels for April.
Mobility levels for personal vehicles have also returned to normal and road traffic during weekdays is now at pre-lockdown levels. However, use of public transportation and ride-hailing remains depressed, and “holiday peaks” for road traffic have been flattened, indicating a prolonged aftermath for leisure and tourism.
The persistence of the COVID-19 virus globally and rising geopolitical tensions still present uncertainties to China’s economic growth and oil demand recovery in medium-term.
IHS Markit now expects a base case scenario where China’s real GDP growth for 2020 is 0.45%, compared with 6.2% on a pre-COVID 19 basis.
Overall, 2020 oil demand, on an annualized basis, is expected to be off by 1.2 MMb/d (or -8%). Demand for certain products will be more resilient than others as the severity of COVID-induced changes to consumer preferences and behavior vary from activity to activity.
“Some areas of oil demand will have more upside than others as China continues to move along the recovery path. Increased use of personal vehicles over public transport due to awareness of social distancing and greater cost competitiveness in a low oil price environment can be expected,” Fenglei Shi, Associate Director at IHS Markit said.
Shi added that demand for petrochemical feedstocks has been very resilient. “On the other hand, jet fuel demand could see a prolonged downturn, following a similar pattern seen during the 2003 SARS outbreak. It will be a mixed bag. But the overall pace of the recovery has been profound.”