Singapore — China's anticipated robust economic growth in 2021 will help to propel domestic oil demand into top gear, with analysts S&P Global Platts spoke to expecting a consumption growth of 3.5%-4.5% year on year, but imports of crude oil may not witness similar growth as the country grapples with bloated inventories.
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With financial institutions forecasting a GDP growth of 8%-9% in 2021, compared with 2% in 2020, the outlook for oil in the world's biggest consumer has become brighter, bringing relief to the global energy market that depends on China's insatiable appetite for volumes.
The International Monetary Fund's GDP growth projection for China is at 8.2%, while Nomura's forecast is stands at 9%. S&P Global Platts Analytics expects a growth of 7%.
China's economic policymakers have pledged to continue macroeconomic policies and not make any "sudden turns", according to a statement from the Central Economic Work Conference held in Beijing in December 2020. In addition, the economy could witness strong policy support as 2021 is the 100th anniversary year of the Communist Party of China, analysts said.
Oil analysts estimated China's oil consumption growth to be at least at a rate half of the country's GDP growth.
Platts Analytics has forecasted oil consumption to be at 15.4 million b/d in 2021, up 3.6% year on year, while Energy Aspects' growth projection, which includes stocking demand, is estimated at 4%-6%.
Demand growth in the first quarter is set to surpass 2020 levels due to a low base last year, while the pace in the second quarter would lag behind the growth witnessed in the same period in 2020, according to a Platts Analytics' report published Jan. 8.
"This is because most of the growth in Q2 2020 oil demand, which was 5.5%, came because of a one-off effort to kick start the economy after the virus outbreak," said Sun Jianan, analyst with Platts Analytics.
High inventories have been taking a toll on recent crude purchases. Crude imports in December 2020 fell to 27-month low of 9.096 million b/d, or 38.47 million mt, in December, taking the total crude imports for the year to 10.86 million b/d, up 707,000 b/d or 7% from 2019, data from General Administration of Customs showed on Jan. 14.
Platts Analytics expects China's crude imports to rise by 81,000 b/d in 2021, which will primarily reflect heavier buying by new refineries prior to their start-up that offsetting destocking activities.
PROSPECTS LIGHTEN UP FOR GASOLINE
Among transportation oil products, gasoline is expected to lead the demand recovery in absolute volume terms, analysts said.
Platts Analytics expects gasoline consumption to increase by about 310,000 b/d, or a 9% year-on-year rise, to around 3.6 million b/d.
"China's lockdown in Q1 2020 dampened gasoline consumption significantly, and it was not compensated by the recovery during the rest of the year, boosting the potential for a sharper rise this year," Sun said.
A Beijing-based senior analyst with an international consulting firm also had similar views, estimating a year-on-year rise of 450,000 b/d in gasoline consumption in 2021. That would equate to a 40,000 b/d rise from 2019 levels.
"The volume of existing gasoline cars will continue rising in 2021, while driving remains the preferred mode rather than public transport," the senior analyst said.
Liu Yuntao, an analyst with Energy Aspects, added that if existing inventories were considered, gasoline demand increase is likely to narrow to 80,000 b/d-100,000 b/d, or 2.5%-3% year on year, from 2020 levels due to destocking in 2021.
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DOMESTIC FLIGHTS TO AID JET FUEL DEMAND
Jet fuel consumption, including the barrels for bonded bunkering, is expected to witness around 130,000 b/d, or 20% year-on-year growth, to about 800,000 b/d in 2021 due to demand recovery for domestic flights, according to Platts Analytics.
However, the volume would remain below the 975,000 b/d level of 2019 as COVID-19 continues to limit international flights.
In addition, jet fuel production is expected to recover, but lag consumption growth due to high inventories, analysts said. In January-November 2020, China's jet fuel output dropped 23.9% to 866,450 b/d, data from the National Bureau of Statistics showed.
GASOIL GROWTH MAY NOT BE SHARP
Gasoil is unlikely to repeat the strong demand growth seen in 2020, analysts said.
"Major drivers for gasoil consumption, such as industrial production and infrastructure investments, are likely slow from 2020 while end-user demand does not appear to be catching up quick enough and this will eventually lead to a slowdown in the fuel's use in 2021," Sun said.
Platts Analytics expects China's gasoil consumption to decline 1.2% from 2020 levels to 3.9 million b/d in 2021, compared with a 2.6% year-on-year growth last year.
"Once industrial activity recovers overseas, specially the producing countries in south and southeast Asia, Chinese goods exports will slow down to weaken demand for China's industrial production and gasoil consumption for domestic transportation," an analyst with an investment bank said.
Energy Aspects expects gasoil demand in 2021 to rise by 50,000 b/d-70,000 b/d year on year.
"We don't expect stronger economic simulators, such as a further boost to construction investment in 2021 compared with 2020. This will also cap gasoil demand," said Liu with Energy Aspects.