Chinese oil demand is back to pre-virus levels, if you can believe it.
Or if it’s not there yet, it’s well on the way. That’s according to sources familiar with the country’s energy industry who spoke to Bloomberg.
“The country’s quick turnaround has helped tighten the petroleum market sooner-than-expected”, a market-moving article out Monday reads.
It’s a “remarkable” feat, Bloomberg goes on to say, in the course of reminding you that demand from China (the world’s second largest consumer) plummeted 20% during the February lockdown. Gasoline consumption “has fully recovered” amid a bounce in factory activity and the return of commuters to the road, sources contend.
The IEA in April projected a truly historic drop in demand, putting 2020 on a path to be the worst year ever for the market.
If Chinese demand is, in fact, nearly back to pre-virus levels, it’s a big deal not just for crude, but for the macro narrative more generally, as it supports the notion that demand can recover quickly as economies restart.
That may turn out to be a pipe dream (no pun intended), but for right now, the market will certainly take it at face value.
If the story gets any traction, proves durable, or is borne out by other countries exiting lockdowns, it could feed into inflation expectations, bear steepen curves, and help bolster cyclicals and other names that have lagged secular growth stocks in the latter stages of the bounce off the March lows.
Although it’s impossible to say what Chinese oil demand is on any given day, Bloomberg cites “executives and traders”, who swear the world’s second largest economy is back to consuming around 13 million barrels per day.
If that’s true, it means demand is down just 400,000 b/d year-on-year in May, an astonishing rebound considering the circumstances.
It would also mean demand is just 700,000 b/d lower than December, which is arguably an even more impressive achievement.
You’re reminded that the industrial output figures for April showed IP rising for the first time since the virus hit, even as retail sales remained subdued.
China’s is a command economy, so it is at least possible that Beijing can get factory activity cranking again with the snap of a finger, irrespective of whether there’s any point in doing so given subdued demand at home (April’s figures showed China sinking further into PPI deflation, for example) and uncertainly abroad, where other key economies are just beginning to emerge from lockdowns.
And it gets better. The same sources said that the only thing keeping demand from rising even higher (presumably above pre-virus levels) is still depressed demand for jet fuel. A bounce there will likely take a bit more time.
The kicker from the article comes when Bloomberg suggests the country’s refiners are literally gorging themselves in the physical market. One source at a major trading house said simply: “The Chinese are buying everything in sight”.