Oil demand in China, the world’s biggest energy consumer, could contract for the first time in two decades this year as Beijing’s Covid-19 policy keeps people indoors during upcoming holidays and reduces the fuel consumption.

Hundreds of millions of Chinese who normally take the roads and domestic flights during the Mid-Autumn Festival — which falls on September 10 this year — and the Golden Week holidays of early October must stay home to avoid being trapped by lockdowns. sudden changes to contain the spread of Covid-19.

Lockdowns in key cities such as the financial hub of Shanghai have already dampened China’s oil demand in the second quarter, while recovery for the rest of the year is expected to be slow as China maintains its zero Covid policy.

China’s demand for gasoline, diesel and jet fuel could fall by 380,000 barrels per day (bpd) to 8.09 million bpd in 2022, which would be the first contraction since 2002, said Sun Jianan, an analyst at Energy Aspects. , calling it a “watershed moment”.

By comparison, demand increased by 450,000 bpd, or 5.6%, in 2021.

So far this year, China has seen its January-August crude oil imports fall by 4.7%, the first contraction for the eight-month period since at least 2004.

“We believe that imports will only increase substantially at the beginning of Q1 2023 when China starts supplying oil for Lunar New Year, rather than our previous expectation for Q4 2022,” Sun said.

While state-owned refiners are ramping up production, independent refiners — which account for a fifth of China’s oil imports — are keeping operations low amid a fiscal investigation, he added.

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In the fourth quarter, demand for gasoline, diesel and jet fuel is expected to increase by about 530,000 bpd from the third quarter to 8.55 million bpd, Energy Aspect’s Sun said, adding that demand could fall. even more so if the cases of Covid-19 increase.

For jet fuel, demand of about 500,000 bpd is less than half the 1.1 million to 1.2 million bpd in pre-pandemic days, said Mukesh Sadhav, head of downstream and oil trading at consultancy Rystad Energy. .

“The resumption of road traffic and diesel will depend more on macroeconomic growth,” he said.

Still, Sadhav said, China’s fuel use could rise by 100,000 bpd this year to 8.2 million bpd, with demand expected to pick up after the Communist Party Congress in mid-October.

“Overall oil demand is expected to increase by 500,000 bpd in November from a year earlier and 1 million bpd in the December-February period as China’s policies become clearer,” he said.