Fuel prices are retreating this morning, with diesel prices down 12 cents and gasoline down 6 cents. Last week, unnamed sources in China hinted at a change in the country’s zero-COVID policy; this week, the country has reiterated an unwavering stance of preventing the disease’s spread. China’s lockdowns have major repercussions for global oil markets, especially given current fuel shortages in the US and Europe.
An official from China’s National Health Commission commented this week that China is committed “unswervingly” to its Zero-COVID policy. Last week, rumors circulated that the country was considering a new, less restrictive policy. China’s stock market rallied by $450 billion on the speculative news. But so far, any changes are purely rumors, and China’s leadership has held tightly to its existing policy of locking down areas that face rising COVID cases.
The continuation of the policy means that lockdowns could occur in major population centers, especially since the country has seen rising case counts in the last week. In turn, those lockdowns mean reduced consumer activity and lower fuel demand. As the world’s largest fuel importer, China makes up a significant portion of global demand. Until the policy changes, China’s zero-COVID policy could continue to weaken global demand, helping to keep prices lower even as the world searches for additional diesel supply.
At the same time, China’s crude oil imports rose in October to the highest level since May, as the country increases its refining throughout and exports more diesel fuel. Lower domestic demand and higher in-take of crude oil means the country can export more diesel fuel around the globe, especially the China maintains the higher export quotas set in September. October did see a 43% drop in Chinese fuel exports, but Bloomberg expects more fuel exports to begin flowing in the future.