A Golden Week for China air travel may stem drop in oil prices
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Some 170 million Chinese holidayed abroad in 2019. That figure sank to less than nine million in 2022 at the height of China’s lockdowns.
PHOTO: REUTERS
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SHANGHAI – Global oil traders are fixated on the next milestone in China’s economic recovery, when travellers head to the airport for the Golden Week holiday in early May.
Some 170 million Chinese holidayed abroad in 2019, before the pandemic struck. That figure sank to less than nine million in 2022 at the height of the nation’s lockdowns.
The likelihood of dramatically more air travel explains why jet fuel consumption in China is widely seen as the single biggest driver of world oil demand growth in 2023, according to JPMorgan Chase & Co.
The signs are encouraging. Overseas ticket searches for Golden Week are 120 per cent of the level in 2019, state media reported, citing an estimate from Trip.com.
As at last Tuesday, actual bookings were more than 10 times those of 2022, the Securities Daily reported.
“Mainland China’s domestic jet fuel demand has almost fully recovered, while international jet fuel demand has recovered to close to 70 per cent of pre-Covid-19 levels,” said Ms Shi Fenglei, a director covering Chinese oil markets at S&P Global Commodity Insights.
It is possible that Golden Week could mark a near-complete recovery in China’s total consumption of the fuel, she added.
The global oil market has been caught between two competing themes in 2023: advanced economies teetering on recession, and the promise that China’s reopening could dramatically lift demand after a three-year blight on consumption due to pandemic restrictions.
Crude has fallen in recent days as the US economy stalls and a prospect of more interest rate hikes
If Golden Week delivers a big boost to air travel, it would signal that demand is back on track and support some of the more bullish views on prices.
But too few passengers would be further evidence of a relatively muted Chinese reopening that has disappointed commodities markets craving a return to normality in their biggest buyer.
The mainland’s total number of passenger flights should nearly equal pre-pandemic levels in the second quarter, according to a forecast from the China Air Transport Association.
But the international component of that will still be less than half of what it was – and overseas flights account for about 30 per cent of the nation’s jet fuel consumption, according to Bloomberg.
Jet fuel will be the biggest component of China’s demand recovery in 2023 because “it was a laggard and it was the one that has not caught up”, said Macquarie Group strategist Vikas Dwivedi.
However, he cautioned that Chinese consumption could end up being “good enough but not great”.
Macquarie estimates that Chinese jet fuel demand will rise by 430,000 barrels a day in 2023 over 2022. This is almost half of the increase of 900,000 barrels forecast for Chinese oil demand as a whole as its vast economy reopens.
And it is more than a third of the global demand growth for jet fuel of 1.2 million barrels predicted by the International Energy Agency. BLOOMBERG
