For the last 6 months, certain provinces in the nation of China have been on what is called a zero Covid lockdown. This tyrannical process, which doesn’t allow for anyone to leave their homes until the entire region tests negative, has essentially restricted the movement of hundreds of millions of its citizens. All the while driving global demand for oil and gas through the floor.
Currently, China is in a position to determine the near-term prices of oil and gas by controlling the release of so many people needing to get back to work and in the factories.
Over the course of these last 6 months, and truly dating back to the beginning of the Biden administration, we have seen a correlated drop in supply and production. OPEC+, Russia and the United States have all seen significant drops in new production. To add to the supply problem, the current administration has also reduced supply levels of the Strategic Petroleum Reserves to record lows. The admin claims the primary purpose has been to reduce gasoline prices in the United States, but much of these reserves have been sold to foreign nations including China.
This mounting concern over existing supply and potential near-term demand has created tremendous volatility in the markets. It is inevitable that China will have to back down on tyranny to salvage its economy which is currently in the throes of its biggest-ever downturn. It is not a matter of “if”, it is a matter of “when”.
Less than 2 weeks ago 10 people were killed in a fire. They weren’t allowed to leave a burning building for one simple fact, they may have covid. This spawned civil unrest and protest by the China people, for the first time in nearly 4 decades… and for the time being, it has caused a change.
Over the last 7 days, China has begun to slowly ease off its tyrannical lockdown structure. The CCP is now allowing citizens to start going back to shopping malls, train stations and even in some cases their place of employment without having to show a negative Covid test. After weeks of protests and turmoil, the CCP has started the slow process are now allowing millions of people to get back to work.
What does this mean to oil and gas?
China is by far the largest consumer and importer of oil and gas. With the world’s largest population and manufacturing sector, they have always been a major factor in the global pricing of hydrocarbons. Naturally, this news will pay a major role in the future pricing of oil and gas when it concerns a nation with the global economic impact that Chiba holds.
China’s relaxation of Covid-related restrictions creating a bullish demand in the market and helping to lift prices at the moment. As it stands today, oil prices are rising in hopes China’s demand will quickly increase coupled with concerns that supplies are being kept tight by the US, Russia, and OPEC.
China’s reopening won’t be swift or happen overnight, but it is coming, and it will provide a major boost to demand in the outlook for next quarter. This is why we are laser-focused on increasing our ability to produce more volume at all times.
