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China’s reopening may not lead to a big jump in oil prices | OilPrice.com

China has gone through three distinct phases in its response to COVID-19 since the first small cluster of ‘pneumonia’ cases were reported by the Wuhan Local Health Commission in Wuhan City, Hubei Province on December 31, 2019. The first phase was the rapid implementation of the policy “zero-COVID” that allowed the rapid economic recovery from China in just the second quarter of 2020. This was a time when more than 3.9 billion people in more than 90 countries or regions were asked or ordered to stay home by their governments. The second stage was marked by Frequent shutdowns In various regions of China, including many of its major cities, as the outbreak of COVID-19 and associated strains of the virus led to a complete lockdown under the strict ‘Zero COVID’ policy. The third stage was driven by National protests Against the ongoing blanket shutdowns consisting of Effective shelves of the policy This, in turn, led to huge waves of injuries and deaths. The next stage, which may arrive earlier than many people expect, is likely to be the recovery of the Chinese economy.

To put this economic recovery back into context: the huge disparity between China’s massive oil and gas needs driven by the economy and the lower level of domestic oil and gas reserves meant that China almost alone established the 2000-2014 commodity ‘supercycle’, characterized by price trends Ever-growing commodities used in a thriving manufacturing and infrastructure environment. In late 2017, China’s high economic growth rate allowed it to overtake the United States as the leading economy The largest total annual importer of crude oil in the world, having become the largest net importer of total oil and other liquid fuels in the world in 2013. More specifically on the economic side of the equation, from 1992 to 1998, China’s annual economic growth rate was basically 10 to 15 percent; from 1998 to 2004 between 8 and 10 percent; from 2004 to 2010 between 10 to 15 percent again; From 2010 to 2016 between 6 to 10 percent, and from 2016 to 2022 between 5 to 7 percent. For most of the period from 1992 to the mid-2010s, much of this activity was focused on energy-intensive economic drivers, particularly manufacturing and the corollary of sector-related infrastructure, such as factories, worker housing, roads, and railways. and so on. Even after some of China’s growth began shifting to less energy-intensive service sectors, the country’s investment in building energy-intensive infrastructure remained very high.

Related: India’s oil imports from Russia jumped 33 times to record high

It is very difficult to measure the current level of infections and deaths from COVID-19 and related strains, such as the National Health Commission of China (NHC) Stop posting Daily COVID-19 case data on December 25, 2022, a practice that has been in effect since January 21, 2020. However, during a recent press conference, Kan Quancheng, a senior official in Henan Province – China’s third most populous province, revealed – that Almost 90 percent of people There are now people with COVID-19 and related strains, which equates to about 88.5 million people in that county alone.

Cases have risen to these levels in large part due to the zero COVID policy and its strict implementation, in which only very limited immunity to the virus was allowed to develop. At the time the zero Covid policy was effectively abandoned, China did not have an effective vaccine against the disease or any of its kind, despite offers from all the major vaccine-producing countries to make such supplies available to them. China also did not have an effective post-infection antiviral, again despite offers from many Western countries to provide such antivirals and post-infection treatments for them. In addition to these negative factors as highlighted OilPrice.com Recently, is that China is suffering from extremes Insufficient intensive care unit capacity in hospitals.

Although this unchecked increase in COVID infections has caused a deeper impact on activity in the near term – Eugenia Victorino, Head of Asia Strategy for SEB in Singapore told EXCLUSIVELY: OilPrice.com Likely to ease to 2022 GDP growth of 2.8 percent – China’s annual Central Economic Work Conference (CEWC) noted in mid-December that boosting growth will be a priority in 2023. “Investment in research and development in high-tech sectors will be accelerated , specifically in the field of new energy, artificial intelligence, biofabrication, and quantum computing.” “Although the CEWC called for greater market access for foreign capital especially in the modern service industry, the long-term policy direction of increasing self-reliance in key sectors will be maintained and on fiscal policy, public spending will ‘maintain the necessary intensity’.” she added. “Therefore, there are upside risks to our forecast of 5.5 percent GDP growth for 2023,” she concluded.

With COVID infections peaking on the East Coast, and though a tough time lies ahead in central and rural China, activity will begin to accelerate by March at the latest, believes Rory Green, chief China economist at TS Lombard, in London. We noted in December that China was looking forward to unleashing consumer activity and consumer confidence in 2023, a message that was emphasized in [Premier] Xi Jinping’s New Year’s speech,” Green told OilPrice.com EXCLUSIVELY: “Beijing is trying to reset domestic and international economic and political relations by toning down the ‘shared prosperity’ and ‘Wolf Warrior’ rhetoric and, most importantly, achieving stronger growth.” Added He emphasized this by saying, “We believe that China is rapidly transitioning from a COVID coma to a new boom, that a GDP target of ‘above 5 percent’ will be set for 2023 and that Xi will look to report GDP comfortably above that level.

However, the reason may be that the semi-automatic feeding of China’s surging economic growth on oil prices has not been marked this time as in previous years. “China’s central leadership is counting on reopening and removing negative policies — ownership, consumer internet, geopolitics — rather than strong stimulus, to drive activity,” Green told OilPrice.com. For the first time, the cyclical recovery in China will be driven by household consumption, particularly services [as] There is clearly a great deal of pent-up demand and savings – around 4 per cent of GDP – after three years of intermittent mobility restrictions.”

As for oil prices, he stressed that it is pertinent to note that transportation accounts for only 54 percent of oil consumption in China, compared to 72 percent in the United States and 68 percent in the European Union. Last year, net imports of oil and refined petroleum were 8 percent lower by volume than the pre-pandemic peak, as infrastructure and export-oriented manufacturing partially offset lower mobility and lower property construction. “Demand drivers should change this year, with travel rising and property less negative, while infrastructure and manufacturing slowing,” said Green. He concluded by saying: “The sure result is an increase in the demand for oil – we estimate an increase of 5-8 percent in the volume of net imports – but it is unlikely that this will lead to a rise in oil prices, especially since China is buying at a discount from Russia.”

By Simon Watkins for Oilprice.com

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