Chinese roads a bit busier as Covid darkens oil demand outlook

(Bloomberg) – China’s roads are showing signs of life after a scorching period of virus lockdowns that crushed activity, potentially providing a boost to global oil demand even as uncertainties remain.

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There are more trucks on Chinese highways than a month ago, while rush-hour traffic congestion in Shanghai has increased slightly as the city cautiously emerges from a prolonged lockdown. An ongoing outbreak in Beijing, an outbreak in the auto hub of Tianjin and a booming cluster in central Sichuan province indicate that the fragile recovery in demand could easily be derailed.

Virus restrictions hit China’s economy and undermined its demand for oil last month, leading refiners to process the smallest amount of crude in two years. The country’s worst outbreak since Wuhan’s lockdown at the start of the pandemic has capped soaring oil prices, which surged after Russia invaded Ukraine in late February.

Shanghai discovered the first non-quarantine Covid-19 cases in six days on Thursday, raising fears that the easing of its lockdown could be affected. China is the world’s largest importer of crude.

A rebound in fuel demand in China depends on “virus control efforts, which is difficult to predict,” said Chaohui Guo, an analyst at Beijing-based investment bank China International Capital Corp. High-frequency data is still “very weak” year-on-year, he said, adding there were signs of recovery on a monthly basis.

There were 7.37 million trucks on Chinese highways on Wednesday, down from 7.19 million on April 21, according to a notice from the Ministry of Transportation posted on its Wechat account on Thursday. The ministry cited data vetted by a State Council logistics task force, which began tracking domestic supply chains last month.

Shanghai’s peak-hour congestion levels on May 19 were 7% higher than on April 6, when a citywide lockdown was first put in place, according to Baidu data. Inc. In Beijing, congestion was 3% higher than on May 5 when one of its largest districts was placed under movement restrictions.

“Road freight business has slowly resumed after major disruptions to logistics and supply chains in early April,” said Yuwei Pei, consultant at Wood Mackenzie Ltd. “China’s oil demand disruption is slowly unwinding.”

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Steve R. Hansen