China oil products rebound sets pattern for post-lockdown surges

The surge in demand for oil products in China was first noted in May 2020 by Torm chief executive officer Jacob Meldgaard who commented that the latest figures for April 2020 indicate that demand for oil products was 1% higher year-on-year.

Anecdotal evidence suggests that traffic in major Chinese cities has risen sharply, back to pre-lockdown levels or even higher. The reason is the fear of lack of social distancing on public transport systems, leading to those who cannot work from home to resort to travelling to work by single-occupancy individual cars. Social distancing appears to be a new oil product demand driver.

With aviation largely still grounded, the surge in demand for transportation fuels does not extend to jet fuel.

Speaking to Bloomberg TV, Kpler head of market analysis Alex Booth said there is an apparent 1.2M b/d increase in implied demand in China in May, although he also noted this had dropped to 300,000 b/d in June 2020, so far.

China also has large volumes of crude oil and products stored on land and moved swiftly to build up floating storage in April when the crude oil price fell to below US$30/bbl.

Mr Booth noted that the number and volume of Chinese inventory is approximately the same as a month ago. “Any uptick in demand: there is still a lot of product (available) to fill that demand,” he told Bloomberg TV.

The rise in Chinese domestic demand seems to have limited exports. Real-time tanker analytics provider Vortexa, which was one of the first to spot the disconnect between product tankers loading and actually delivery of cargo, noted that, “With a rise in China’s domestic demand, but a lingering supply glut in the wider Asia market, Chinese refiners have cut diesel exports in May to a provisional 185,000 b/d.”

Vortexa data shows this is ”…at least a four-year low, and down by 60% versus January to April levels. Singapore accounted for 18% of China’s diesel arrivals in the first five months of this year, up from 10% over the same period in 2019.”