China's prolonged COVID-19 battle curbs oil products demand while India's races ahead

Disparate pandemic approaches by two Asian economic giants in recent weeks has given rise to vastly different rates of oil product demand in China and India, highlighting the uncertainty the former faces on consumption levels while economic revival in the latter is likely to further boost demand in the leadup to summer.

While China has implemented lockdowns to curb COVID-19 outbreaks before, sources suggest the latest restrictions could have the greatest impact on demand for oil and products.

Restrictions imposed across 20 provinces and municipalities have sent nearly 30 million people into lockdown, with the epicenters of the latest outbreak accounting for around 30% of China's oil consumption in 2021, according to S&P Global Commodity Insights Analytics.

"The COVID resurgence in China is bad. Not sure this time; macro situation is bad as well," a crude oil trader in Singapore said.

The country's refiners are also grappling with high crude oil prices resulting from supply pressures fueled by the Russia-Ukraine conflict, traders said.

The fear of sanctions on Russian crudes has scared Chinese national oil companies and private refiners and made purchasing much-wanted grades such as ESPO Blend a tricky affair, the Singapore-based trader said.

The reticence to purchase cargoes could lead to refinery run cuts in China as product margins take a beating.

"Margins for private refiners are bad," a trader with a Japanese trading house said.

Meanwhile India is seeing higher demand for oil and products in March as pandemic movement restrictions were viewed as a thing of the past, refinery sources said.

"There is no COVID fear [in India]. Things have become quite OK for now," an Indian refinery source said, adding: "Transportation fuel [demand] is healthy, [domestic] tourism is booming."

As India's economic activity chugs towards normalcy, the hunger for oil and products will only move higher, sources said.

China's exports rise

According to S&P Global estimates, China's COVID-19 induced lockdowns could result in oil consumption loss of around 650,000 b/d in March and 400,000 b/d in April.

Chinese gasoil exports hit multi-year lows in January and February at 220,000 mt and 200,000 mt, respectively, data released March 18 by the General Administration of Customs showed, amid tight export quotas and a robust domestic market.

Against higher export margins in recent weeks, the drop in local demand and higher stockpiles could translate to gasoil outflows of more than 500,000 mt in March.

Industry sources said outflows from China could continue in April, despite an earlier request by the country's National Development and Reform Commission to suspend gasoil and gasoline exports.

"As domestic demand slows down, it looks less necessary to keep all oil product barrels at home," a Beijing-based analyst said.

China's Sinochem is likely to export at least 80,000 mt of gasoil in April from its Quanzhou Petrochemical refinery in Fujian and ChemChina's refineries in Shandong, market sources said. Sinopec's Tianjin Petrochemical also plans to export 40,000 mt of gasoil in April, while other refineries under Sinopec have mostly planned jet fuel exports.

The domestic demand situation for jet fuel is similar to gasoil, with sources saying that flight schedules across the country have been disrupted by pandemic-related curbs. This has resulted in lower domestic demand for aviation fuel, prompting the country to export its surplus volumes.

China's jet fuel exports totaled 560,000 mt and 670,000 mt in January and February, respectively, the GAC data showed. This was despite China's jet fuel output falling 18.4% on year to 5.56 million mt over January-February, National Bureau of Statistics data showed. China's jet fuel exports are expected to remain steady in March from February.

India's demand rises

India's domestic gasoil consumption is expected to rise in coming months amid peak summer demand season and a steadily recovering industrial sector, resulting in state-owned refiners keeping more barrels in the country to meet domestic requirements.

With refineries already running at maximum operational capacities, higher domestic gasoil consumption will lead to less supply availability for export, sources said.

"India is now effectively COVID-free, and with school vacations, marriage season and festivities coming up, diesel consumption is set to rise domestically, but it also depends on retail prices," a South Asia-based trader said.

India's gasoil consumption in February recovered from a four-month low to reach 6.51 million mt, up 2.21% on the month, while domestic jet fuel consumption fell 4.4% over the same period to 435,000 mt, latest Petroleum Planning and Analysis Cell data showed.

Industry sources said there are high hopes that India's jet fuel demand will pick up speed in the near term, especially following the resumption of international commercial flights from March 27, marking the first time that India has allowed unrestricted international flights since the pandemic began in 2020.