China’s economy-boosting measures to help jet fuel, gasoil demand recovery

China’s State Council decided to take measures to improve logistics from tight movement control amid COVID-19 and boost infrastructure construction, which is expected to support jet fuel and gasoil demand recovery, according to a report by the government-backed Xinhua News agency on May 24.

China’s dynamic zero-COVID control has slowed the country’s economic activities since early March and fuel consumption worsened in April amid a protracted lockdown in Shanghai.

This led China’s industrial production in April to fall 2.9% year on year. Representing the contraction, the purchasing manager’s index, or PMI, stood at 47.4% in April and 49.5% in March, data from the National Bureau of Statistics showed.

The government has been looking for ways to balance COVID-19 controls and economic development to meet the annual gross domestic product, or GDP, growth target of 5.5%.

According to Xinhua’s report on May 24, the cabinet targets to ensure smooth operation in industrial supply chains by taking measures to gradually increase domestic as well as international flights, and to facilitate foreign companies’ manpower movements on the top of financial support to the aviation sector.

Analysts said the move will support China’s jet fuel demand, which is drying amid the recent wave of COVID-19 lockdowns. It pushed domestic production to a 10-year low, with exports hitting a two-year high in April.

China’s jet fuel output slumped 55.6% year on year to 1.75 million mt in April, the lowest since June 2012 when the volume was at 1.65 million mt, NBS data showed. Jet fuel exports, however, jumped 45.5% on the year to a two-year high of 960,000 mt in the month, China’s customs data showed.

However, “we need to wait for the details of the measures to make demand estimation, how gradually it will be, which group of people will be allowed to fly, which flights to be resumed, etc.,” a Beijing-based analyst said.

S&P Global Commodity Insights Platts Analytics’ latest estimation showed that China’s jet fuel demand is expected to drop to a multiyear low of about 400,000 b/d in the second quarter, then rebound by over 70% quarter on quarter in July-September.

To smoothen freight transportation and supply chain, the State Council is set to remove the traffic restrictions on the trucks that depart from low-COVID-risk regions and cut their administration fees, according to Xinhua.

The cabinet also decided to encourage infrastructure investments, including water conservancy projects, rural road construction and railway construction as a measure to boost the economy, Xinhua reported.

Analysts said these measures will help to lift gasoil demand from the transportation and construction sectors.

Platts Analytics estimated gasoil demand to fall to a two-year low of about 3.5 million b/d in Q2 and rebound to over 4 million b/d in Q3.
Source: Platts