China’s Covid Zero Pivot Risks Tightening Global Fuel Markets
Friday’s move was a small step toward a full reopening, which could be a long way off.
(Bloomberg) -- China’s move to ease some Covid Zero policies could eventually lift energy consumption in the world’s second-largest economy and tighten the global supply of oil and natural gas.
Crude oil jumped after China said it would reduce the amount of time that travelers and close contacts of infected people must spend in quarantine. If China were to fully reopen, it could boost oil demand by around 500,000 barrels a day, just as the market contends with sanctions on Russian supply, said Saul Kavonic, an energy analyst at Credit Suisse Group AG.
Virus restrictions have kept a lid on China’s fuel demand this year, providing some relief for oil and gas importers in Europe and Asia grappling with surging prices in the wake of Russia’s war in Ukraine.
Certainly, Friday’s move was a small step toward a full reopening, which could be a long way off. But when China does return, it would tighten global gas markets and spur worldwide competition for seaborne shipments of the fuel, according to Kavonic. China’s liquefied natural gas imports have fallen 20% so far this year due in part to its virus policies.
“If one thinks this year’s gas market has been tight, just wait until China comes back,” said Kavonic. The LNG market could be “twice as tight in 2023 as it was in 2022, with prices to match.”
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