Shenzhen city of 17 million people was locked down, while traffic congestion in Shanghai decreased significantly. Beijing’s anti-epidemic approach could cause oil demand to plunge.
According to Bloomberg, traffic congestion in Shanghai has decreased by more than a third from a year earlier. The Beijing government’s Zero-Covid strategy and strict restrictions hit oil demand hard.
The blockade orders caused a sharp drop in the number of people going out, not only in the cities where the ban was imposed, but also in other cities. People don’t want to go out because of the virus fear.
On March 13, Chinese officials placed the entire 17 million inhabitants of the city of Shenzhen under lockdown for at least a week. The reason is the increase in the number of new Covid-19 infections.
Demand plunges
On March 14, Jilin province’s 24 million people were asked not to move or travel to other places. Shanghai has also suspended in-person classes and intercity bus service. As of March 15, at least 13 cities across the country were locked down.
The blockade orders have had a big impact on the world’s largest oil importer. Declining demand in the country of 1.4 billion people caused the world oil market to cool down. Oil prices fell sharply after soaring because of the conflict between Russia and Ukraine.
“The oil market plunged after China continued to pursue its Zero-Covid strategy and introduced strict measures to control the new wave of Covid-19,” said Edward Moya, a financial expert at Oanda consulting firm (based in the US) explained to Zing.
According to observers, if China imposes blockade orders in more regions, the impact on global oil demand will be even greater.
“If China continues to implement strict blockade measures, oil prices may even fall to 80 USD/barrel,” Moya warned.
According to Trading Economics data, as of 10 pm on March 16 (Vietnam time), WTI crude oil and Brent crude oil were both trading below the threshold of 100 USD/barrel.
Specifically, the price of WTI oil was at 95.68 USD/barrel, down 0.82% compared to the previous 24 hours. And Brent oil price witnessed a decrease of 1.38% to 98.55 USD/barrel.
“Broader lockdown orders will affect the movement of people in the coming weeks,” said consultancy Energy Aspects Ltd. comment. According to the company, China’s oil demand could fall to 170,000 barrel/day in the first quarter of 2022 and 130,000 barrel/day in the second quarter.
S&P Global Commodity Insights lowered its forecast for China’s gasoline, diesel and jet fuel consumption to 1 million barrel/day in March, a decrease of 600,000 barrel/day.
Impact on oil prices
“The downward revision is due to the effects of the recent outbreaks on travel, the deceleration of manufacturing and construction activities,” said China oil market analyst Fenglei Shi explained.
In the past, the oil market has plummeted due to strict anti-epidemic measures around the world. On April 20, 2020, even seasoned traders could not believe their eyes. WTI crude oil price fell to minus 40 USD/barrel.
Restrictions on movement to fight the epidemic have made oil in many places considered “junk”. People have to pay to store or transport oil.
It was the oil industry’s steepest decline ever. Tens of thousands of oil workers lost their jobs. Even the giant Exxon Mobil was forced to make deep cuts to its ambitious investment plans.
At the present time, when countries around the world seek to “live with the virus”, the above scenario is difficult to repeat with the oil market. However, oil prices will still be significantly affected by China being a large oil consumer.
In addition to fewer Chinese consumers taking to the streets, some intercity bus services have also been suspended. Road transport activities at ports have come to a standstill.
The port of Yantian in Shenzhen – the city that has just been placed under lockdown – is China’s second most important port, after Shanghai. Each month, the port handles about 10% of the containers shipped from China.
According to Bloomberg Economics, in 2021, Guangdong’s $795 billion worth of exports accounted for 23% of China’s shipments that year, larger than all of the rest of the province. Shenzhen’s export turnover alone has reached 303 billion USD.
“China is a big oil consumer. Its blockade will reduce demand, thereby creating an imbalance in the market,” commented financial expert Craig Erlam.
In Shandong province alone, home to many of China’s private refineries, some could be affected by supply chain bottlenecks due to the new restrictions, according to consulting firm JLC.
@ Zing News
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Source: Vietnam Insider