Chinese oil demand in April falls to lowest level in two years

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Widespread Covid-19 restrictions caused China’s apparent demand for oil to plummet in April. A recovery could follow as authorities begin to ease restrictions, but persistent crude prices could limit the extent of any rebound.

China’s apparent oil demand in April fell 8.6% from March to 12.74 million barrels per day, according to Energy Intelligence calculations.

It is the first time since April 2020 that oil demand has fallen below 13 million bpd. At that time, the country was just emerging from its first and most devastating wave of Covid-19 infections.

April refinery throughput contracted 8.6% (about 1.2 million bpd) from March, which was a key driver of the collapse in aggregate demand .

Refiners cut output after domestic demand began to weaken from March, leaving them with high inventories of refined products.

Energy Intelligence calculates China’s apparent oil demand from the country’s refining throughput plus its net imports of 11 different refined products.

The calculation does not include changes in inventory levels as this information is not publicly available in China.

Demand falls at all levels

China’s main refined products – gasoline, diesel, jet fuel, naphtha, fuel oil and liquefied petroleum gas – all saw their apparent demand fall in April, as the sharp decline in refinery throughput affected all production units.

The sharp decline in all commodities also signals that the Covid-19 lockdowns have affected demand from the petrochemical sector as well as demand for transportation fuels.

April retail sales in China fell 11.1% from the same month last year, while the unemployment rate rose to 6.1% in April, its highest level since February 2020 This indicates a significant weakening of the economy.

The hardest hit was jet kerosene – the product most sensitive to Covid-19 restrictions – as flights fell from around 11,000 a day in February to just over 3,000 in April, according to the International Energy Agency.

Jet-kerosene production fell to 463,000 bpd in April, its lowest level since July 2012.

Energy Intelligence calculates that apparent demand for jets has fallen to 242,000 bpd as refiners seek to maximize exports due to collapsing domestic demand. Jet fuel cannot be stored for as long as gasoline and diesel.

Modest recovery possible

May figures could show a modest recovery in demand. Covid-19 restrictions have eased as daily case counts have fallen, and Shanghai is set to reopen on June 1 after two months of lockdown.

As of May 23, Nomura Securities estimated that some 208 million people were affected by containment measures in areas representing 20.5% of Chinese GDP.

This was down from 343.5 million people and 35.1% of GDP as of April 25.

Beijing is also rolling out stimulus measures and tax cuts, which could encourage car sales and diesel consumption for transporting construction materials.

But it will take longer and a further drop in Covid-19 cases to give a significant boost to oil demand, which Energy intelligence predicts will be 800,000 bpd lower in the second quarter of this year, compared to in the same period of 2021.

“With most indicators in negative territory, there is no hope for Chinese demand,” an analyst specializing in China’s energy sector told Energy Intelligence. “A recovery is unlikely if commodity prices remain at current high levels.”

Export quotas could increase races

The government’s allocation of more export quotas for refined products could prompt state refiners and private giant Zhejiang PetroChemicals to increase their crude volumes.

So far this year, quota allocations for petrol, diesel and jet have been set at a paltry 13m tonnes for 2022, down 59% from the first half of 2021, as the government seeks to limit carbon emissions from refineries.

Chinese energy consultancy JLC said last week that the government may soon issue an additional 3.5 million tonnes of export quotas for refined products.

This could help reduce high product inventories, encourage refiners to increase crude throughput and ease tensions in the Asian product market.

China’s Apparent Oil Demand in April 2022
(‘000 bpd) Apr ’22 March 22 Apr ’21 MoM %Chg. YoY %Chg.
Apparent Oil Demand
Refinery throughput 12,659 13,853 14,144 -8.6% -10.5%
Product imports 1,053 1,092 1,102 -3.6 -4.5
Product exports 972 1,012 1,725 -3.9 -43.6
Net imports 80 80 -623 0.4 -112.9
Apparent demand 12,739 13,933 13,521 -8.6 -5.8
Product request
Gasoline 2,838 3,425 2,909 -17.1 -2.4
Kerosene 242 500 903 -51.5 -73.1
Diesel 3,430 3,591 2,441 -4.5 40.5
Essence 691 696 405 -0.7 70.8
Naphtha 1,244 1,322 1,154 -5.9 7.8
LPG 2,102 2,223 2,050 -5.4% 2.5%

China’s apparent oil demand from January to April 2022
(‘000 bpd) January-April 22 Q1’22 January-April 21 Jan.-Apr. 22 vs. T1 %Chg. YoY %Chg.
Apparent Oil Demand
Refinery throughput 13,637 13,963 14,176 -2.3% -3.8%
Product imports 1,157 1,191 1,042 -2.9 11.0
Product exports 962 958 1,561 0.4 -38.4
Net imports 195 233 -519 -16.4 -137.5
Apparent demand 13,832 14,196 13,656 -2.6 1.3
Product request
Gasoline 3,307 3,464 2,939 -4.5 12.5
Kerosene 494 578 838 -14.5 -41.1
Diesel 3,618 3,680 2,583 -1.7 40.1
Essence 705 709 486 -0.6 44.9
Naphtha 1,404 1,458 1,274 -3.7 10.3
LPG 2,171 2,180 2,107 -0.4% 3.0%
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