Analysis: China's oil product demand under pressure in Q1 as Wuhan virus limits travel

China's oil product consumption growth will likely receive a setback in the first quarter as the Lunar New Year festive period may fail to significantly boost fuel demand, with the outbreak of the Wuhan coronavirus limiting both road and air traffic flows.

The Lunar New Year, which falls in either late January or early February each calendar year, is a major national holiday that marks one of the country's busiest travel seasons, when gasoline and jet fuel consumption typically spikes. More than 90 million people are estimated to move more than 100 km during this period by road, railways or air each day.

However, the cyclical boost in domestic transportation fuel consumption in the first quarter may not materialize this year. The government has imposed a series of warnings and restrictions on key travel routes as authorities step up efforts to contain the spread of the coronavirus outbreak, which reportedly began in China's Wuhan city.

Wuhan City Council has suspended all public transportation services, including city buses, subway, ferry and coach. It also shut the city's airport and railway stations, effective Thursday.

China's oil product consumption over the first 11 months of 2019 came in at 301.93 million mt, up 1.5% from the same period in 2018, latest data from the country's National Development and Reform Commission showed.

Considering the series of travel and transportation restrictions, the country's overall oil product consumption could slip between 2% and 8% on the year over January-February this year, according to a survey of industry, refinery and trade sources conducted by S&P Global Platts.

Related infographic: Coronavirus: Could oil demand weakness become contagious?

JET FUEL

Demand for jet fuel may take a significant hit from the latest epidemic as authorities put greater emphasis on controlling flights in and out of Wuhan city.

Civil Aviation Administration of China announced Monday that all air tickets to or from Wuhan would be fully refunded.

"People will not only cancel the Wuhan-bound flights for full refund but also other domestic flights and international flights to China, because an airplane is a sealed space, nowhere to hide if there is a virus-infected person inside," a Singapore-based aviation sector analyst said.

China's apparent demand for jet fuel rose 7.3% year on year to 898,000 b/d during the first quarter last year, S&P Global Platts Analytics' data showed.

However, the year-on-year demand growth for the fuel would slow to 3% in Q1 this year if the coronavirus persists till May, a significant slowdown compared to the average growth rate of around 7%-8% seen in previous years, a Beijing-based analyst said.

Taking the SARS epidemic in 2003 as a preliminary guideline, several major cities could register a decline in aviation fuel demand.

Hong Kong, for one, saw the city's jet fuel imports tumble in the second quarter of 2003, a period during which the death toll peaked.

The city imported 719,736 mt of jet fuel in Q2 2003, down 37.1% from the same period a year earlier, according to data from the government of Hong Kong SAR's Census and Statistics department.

Similarly, apparent demand for the fuel in mainland China dropped around 35% on the year to 131,000 b/d in May 2003, Platts Analytics' data showed.

The SARS outbreak reduced annual traffic of Asian airlines by 8% compared with only 3.7% for North American carriers, implying that Singapore jet fuel prices weakened more than the European and US prices, with a similar scenario likely to play out in 2020, Damien Courvalin, analyst at Goldman Sachs, said in a note.

GASOLINE

China's gasoline demand may also register a substantial year-on-year decline in Q1 as Wuhan city -- located in the central Hubei province -- is considered one of the major transportation hubs along the Changjiang River."

The virus has affected driving activities around that area. Meanwhile, driving activities in big cities, such as Beijing, Shanghai and Shenzhen, will also slow down when the Chinese New Year holiday is over as companies encourage employees to work from home," the Beijing-based analyst said.

China's road traffic flow usually peaks in Q1 during the festive period, according to data from the Ministry of Transportation.

The road transportation turnover in February 2019 came in at 27.27 million person-km/day, sharply above 2019's monthly average of 24.07 million person-km/day, according to the ministry's data.

Still, the epidemic's impact on gasoline consumption would be less severe than that for other transportation fuels as passenger vehicle usage during the Lunar New Year holiday period is limited to mostly short-distance travels, industry sources and analysts told Platts.

In addition, "gasoline demand has been in a downward trend anyway as transportation mode continues to change," the Beijing-based analyst said.

The country's expanding railway and air transportation networks have gradually replaced long-distance buses fueled by gasoil and cars fueled by gasoline.

Accordingly, China's apparent demand for gasoline in Q1 fell 1.2% year on year to 3.55 million b/d, Platts Analytics' data showed.