By Tsvetana Paraskova of Oilprice.com
Strict lockdowns in Shanghai and the resulting depressed fuel demand led in May to the largest annual decline in Chinese refinery production in at least the past decade, official data cited by Reuters showed on Wednesday.
Last month, Chinese refiners processed around 12.7 million barrels per day (bpd) of crude oil, down by 10.9 percent compared to May 2021, according to data from the Chinese National Bureau of Statistics. Refinery throughput was marginally higher compared to the April processing rate of 12.61 million bpd, but the April refinery output was also low by Chinese standards.
Weak fuel demand amid strict lockdowns with China's "zero COVID" policy was behind the largest annual plunge in at least a decade in May.
Refining operations started to recover at the end of last month, when China announced a gradual easing of the lockdowns in Shanghai and Beijing. However, flare-ups since early June have prompted authorities to impose fresh curbs on mobility, in a sign that China's oil demand recovery will not be smooth.
A new "explosive" outbreak in a Beijing district is threatening the demand growth recovery again this week.
Last week, a return to lockdowns in Shanghai weighed on oil prices, suggesting it may be a while yet before the Chinese economy returns to normal. On the flip side, news that China's oil imports in May were 12 percent higher than a year earlier could potentially lend support to prices, although they may not be indicative of an actual demand increase.
"The easing of Covid-related restrictions in China should have provided a further boost to sentiment in the market. However, a flare-up of cases in Beijing and Shanghai more recently has seen authorities tighten restrictions once again. China's covid zero policy remains a downside risk for the market," ING strategists Warren Patterson and Wenyu Yao wrote on Tuesday.