Oil price is at a two month high Monday, a day it was revealed that Chinese oil demand has risen to near levels last seen before Beijing imposed a national lockdown to fight the coronavirus outbreak.
China is the world’s second largest oil consumer, behind only the U.S., and the country’s quick turnaround has helped tighten the petroleum market sooner-than-expected.
The international crude benchmark Brent is at $34.60 a barrel after gaining $2.10 while the US grade commonly called West Texas Intermediate crude has surged $32.14 a barrel one month after plunging into negative territory. The brightening global oil market prospects will be boom for oil dependent nations like Nigeria that have projected oil revenues will collapse by 80% according to government estimates.
Chinese is witnessing a remarkable economic turnaround after demand crashed by about 20% as the country went into lockdown in February.
Consumption of gasoline and diesel has fully recovered as factories reopen and commuters drive rather than use public transport, according to the people, who asked not to be named because they aren’t authorized to discuss the matter publicly.
Pinpointing the exact level of Chinese oil demand in real time is a difficult exercise, but executives and traders who monitor the country’s consumption said it was at about 13 million barrels a day, just shy of the 13.4 million barrels a day of May 2019 and 13.7 million barrels a day of December 2019.
The overall number would be higher were it not for jet-fuel demand, which is still running well below a year’s ago level, they said.
The International Energy Agency, which publishes closely watched supply and demand estimates, is far more pessimist about Chinese consumption. In a report last week, it predicted that the Asian giant will consume less oil every month for the rest of the year than it did during the same period of 2019.
The collapse in Chinese consumption in early February marked the beginning of the worst ever chapter in the history of the petroleum industry and foreshadowed the impending damage to the global economy wrought by the virus.
The oil crash was compounded by a price war between Saudi Arabia and Russia that would eventually lead to negative prices. Now, OPEC and its allies have patched up their differences with an historic accord to curb production and output elsewhere, notably the U.S. and Canada, has also fallen significantly.
Gasoline and diesel are leading the recovery in China as commuters prefer the safety of their own cars, rather than using public transport.
Rush hour traffic in multiple Chinese cities has surged in the last couple of weeks, in many cases running either at or even above year-ago levels, according to data from navigation company TomTom International BV.
The traffic has particularly intensified in cities other than Beijing and Shanghai, which typically have more space for the drivers that are now using their cars to commute into work.
Traffic congestion at peak times in cities such as Shenyang, Chongqing, Tianjin and Shijiazhuang is peaking at between 10 and 50 percentage points above the level of a year ago, according to data from TomTom. The data from the navigation company is widely used among oil traders to estimate real-time fuel consumption levels in China.
Diesel demand is also recovering strongly as Beijing encourages farmers to plant more to guarantee the country’s food security and industrial consumption recovers.
The uptick in China’s gasoline and diesel consumption has prompted state and independently-owned refiners to crank up run rates to convert more crude oil into fuel, according to the people, who asked not to be identified because they’re not authorized to speak publicly on the matter. That means Chinese crude stockpiles are actually being drawn down.
