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With virus curbs lifted, analysts expect second quarter rebound in China fuel demand

·3-min read

By Muyu Xu and Chen Aizhu

BEIJING/SINGAPORE (Reuters) - China's second quarter fuel demand is forecast to rebound from the first quarter, nearly matching year-ago levels, as Beijing lifts curbs to contain its coronavirus outbreak and resume the full output of the world's second-largest economy.

Demand for refined fuel, including diesel, gasoline and jet fuel, in the second quarter may rise by 2.4 million barrels per day (bpd), or 23%, from the first quarter, said Michal Meidan, a director at the Oxford Institute for Energy Studies (OIES).

Analysts at SIA Energy in Beijing predict second quarter demand for the three main transportation fuels will rise by 1.1 million bpd versus the first quarter.

China has largely contained the spread of the novel coronavirus and it is gearing up efforts to re-open the economy, which contracted for the first time on record in the first quarter.

Global oil producers would welcome a demand recovery in China, the world's top crude oil buyer, but not it may not be enough to alleviate a massive global supply glut.

"We project China's total oil demand to almost return to last year's level in the second quarter after falling by 2.4 million (bpd) in (the first quarter)," said Feng Fu, research director at Wood Mackenzie.

Meidan from OIES expects diesel and fuel oil to lead the recovery, with a 20% growth over the first quarter, while gasoline remained more muted with a 10% rebound during the same period.

SIA estimates that second-quarter gasoline demand will rise by 504,000 bpd and diesel by 451,000 bpd from the first quarter.

However, both SIA and Meidan forecast second-quarter fuel demand will remain flat versus the same period a year ago.

A rebound in gasoline demand will occur as commuters use more private cars to avoid public transport led rebound in gasoline. Location technology firm TomTom's traffic index shows that congestion in major Chinese cities is matching year-ago levels during weekdays.

Traffic congestion in major Chinese cities

The density of nitrogen dioxide, a noxious gas emitted by motor vehicles, power plants and industrial facilities, has increased by more than 45% in big cities including Shanghai and Shenzhen, according to data from China Air Quality Monitoring.

Nitrogen dioxide density in major Chinese cities

By April 15, about 84% of medium- and small-sized enterprises across China have resumed operation, and national electricity consumption has rebounded after a contraction for two months.

However, headwinds loom for the manufacturing sector amid dwindling orders at export-oriented factories and restrictions still remain on domestic and international air travel, leading to some forecasts of second-quarter demand to contract.

Singapore-based consultants FGE expect second-quarter demand for gasoline, diesel fuel and jet fuel to fall by 110,000 bpd versus the first quarter and to be 1.1 million bpd less than the year ago period.

China's refined oil products production & exports

The outlook for marine fuel demand looks bleak as the demand for exported goods is dropping.

Container handling volume at major Chinese ports, an indicator of international trade and manufacturing activities, has contracted for three weeks in a row since early April, according to China's Ports & Harbour Association.

(Reporting by Muyu Xu in Beijing and Chen Aizhu in Singapore; Editing by Christian Schmollinger)

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