China's Oil Demand Surges, Rebounding Strongly Despite Pandemic

China: China's oil demand has hit an all-time high, exceeding 15 million barrels per day in March. This is primarily due to increased crude throughput by refiners to meet the growing demand for transportation fuels and Naphtha, a key petrochemical feedstock. Energy Intelligence's analysis reveals that the country's oil demand surged by 7.8% from January-February combined levels to 15.3 million bpd in March, considering refinery throughput and net imports of 11 refined products.

The first quarter of 2023 saw a significant increase in demand for gasoline and jet fuel, signalling a rebound in personal mobility as Covid-19 counter-measures eased. Chinese oil demand outperformed expectations, bouncing back strongly since most pandemic restrictions were lifted in December 2022. However, it remains to be seen if this trend will continue, and whether demand growth will taper off in the coming months.

China's oil demand has surged by 387,000 b/d during the first quarter of 2023 compared to the same timeframe last year. It is predicted to increase by 725,000 b/d in 2023, contributing nearly half of the estimated global demand growth of 1.5 million b/d. While liquefied petroleum gas experienced a minor decline, demand for all other primary product categories exhibited growth from March as compared to January-February.

Jet fuel demand in March 2022 increased by 38% compared to the same period last year, as air travel dipped during the pandemic, and a surge of infections in Shanghai resulted in a two-month confinement period in the city. The first quarter of this year saw a 71% rise in jet fuel demand from the fourth quarter of 2022, totalling 605,000 b/d, with domestic air travel bouncing back to the pre-pandemic levels of 2019 by February 2022. Meanwhile, purchases by China's small independent refiners of discounted Russian fuel oil helped drive apparent demand for fuel oil to a monthly high of 1.28 million b/d in March.

China received approximately 150,000 barrels per day (b/d) of fuel oil from Russia in March. However, there are concerns regarding the origin of an additional 150,000 b/d of fuel that indicated it entered China from Malaysia or Singapore. Small independent refiners have previously utilized fuel oil as a feedstock due to its exemption from import quotas as opposed to crude oil. In addition, the current low prices for sanctioned Russian products have increased their appeal to refiners.

The demand for fuel oil has surged due to the increased production of very-low-sulfur fuel oil (VLSFO) by refiners, as China aims to establish its eastern coast as a significant marine fuel center. China has been witnessing a rise in fuel oil output since 2020, as more refineries have started supplying VLSFO to the bonded market.

The growth of fuel oil production is anticipated to decline later this year as a majority of the bunker [marine fuel] market share has already been secured by domestic resources. As far as domestic travel and tourism is concerned, most of the demand recovery has already been achieved, although the future of diesel demand remains unclear. On the other hand, the demand for jet fuel is forecasted to continue its recovery, due to the expected growth in international air travel.

As of May, international flights were operating at approximately 40% of the levels seen in 2019. However, projections suggest that by the close of 2023, they will increase to about 80% of 2019 levels. Along with this rise in air travel, demand for jet fuel is anticipated to return to its pre-pandemic levels in 2024.