Lockdowns, energy price hike could worsen China’s oil demand risks: report

Some 0.5 million bpd of oil consumption is at risk in case of a severe lockdown.

China’s oil demand risk could get worse, should the government impose a severe lockdown as COVID-19 cases surge, Rystad Energy reported.

According to Rystad Energy Senior Oil Market Analyst Louise Dickson, it is estimated that some 0.5 million barrels per day of oil consumption is at risk if a lockdown is put in place.

This is further impacted by shortages in fuel supply due to inflated energy prices.

“The country’s zero-tolerance Covid-19 policy is deflationary in the short term as less money is pumped into the economy and less oil is consumed, but on a global scale creates inflationary supply-chain issues as manufacturing and transport hubs lock down,” Dickson said.

Global oil prices continue to decline, sinking below $100 for the first time in the last three weeks.

Rystad Energy, however, noted the reprieve of cheaper oil may be short-lived as falling prices indicate the market has not fully realized the potential impact of lost Russian barrels on global supply.

“Inflationary risks are persisting, especially in the energy sector, recently validated by China’s plea with refineries to suspend April’s gasoline and gas oil exports to guarantee domestic demand and quell prices,” Dickson also said.

He added that China could signal less risk to its oil consumption in the short term if it sifts away from its zero-tolerance COVID-19 policy.

This could also lead to less deflationary lever on oil prices in case of new breakouts.