China travel curbs threaten lunar new year fuel demand

Chinese authorities are issuing increasingly strict warnings against travel during next month's lunar new year period on rising concerns about new Covid-19 outbreaks, threatening to curb transport fuel use during the high-demand period.

China has been hit by its worst coronavirus outbreak since last summer, with 138 new cases recorded yesterday. Most of the cases were reported in Hebei province, just north of Beijing, prompting the government to impose transportation curbs that have disrupted road fuel deliveries within Hebei and to other provinces including Shanxi, Beijing and Shaanxi, have disrupted road fuel deliveries.

Diesel consumption has been hit by the transportation and logistics restrictions, while gasoline demand has fallen because of a drop in car use in locked-down cities such as Shijiazhuang, Xingtai and Langfang. As many as 22mn people are now subject to lockdowns, although the limited geographic spread of the outbreaks has minimised the impact on prices and demand in China as a whole.

But the potential for lunar new year travel to seed the coronavirus across the country — and concerns the Hebei outbreak could spread to nearby Beijing — have alarmed the government, even as case numbers pale in comparison to those in Europe and the US. Top economic planning body the NDRC and the national health commission have called for people to avoid travel, while the transport ministry said it will suspend public transportation to and from medium and high-risk areas. The government is even paying some migrant workers to cancel trips home during the holiday, which officially starts on 12 February.

The curbs are likely to weigh on transportation fuel demand during Chunyun — the near-40 day period before and after the lunar new year, when domestic travel typically peaks as people return to their hometowns.

Road passenger volumes — an indicator of demand for road fuels, especially gasoline — usually rise by over 20pc month on month in the period, national bureau of statistics data indicate. Gasoline demand hit 3.11mn b/d in January-February 2019, 8pc higher than in the following two months, while diesel demand was 16pc higher at 3.1mn b/d in the same comparison. The lunar new year holiday falls on different dates each year, complicating comparisons.

Road passenger volumes slumped by more than 80pc in last year's Chunyun period compared to a month earlier as China imposed the world's first nationwide Covid-19 lockdown.

Wholesalers and retailers typically build large fuel stocks ahead of the lunar new year. But refiners have cut their expectations for this year's pre-holiday sales because of the impact of the Covid-19 restrictions on travel, as well as colder-than-usual winter weather. Many regions of China have been hit by snowfalls, even in areas where temperatures rarely dip below zero, while Beijing last week recorded its coldest morning since 1966. Refiners have now started curtailing run rates, slowing demand for imported crude.