Oil was down Thursday morning in Asia over fresh fuel demand worries after England restricted travel and China seeks to limit travel during the upcoming Lunar New Year holidays.
“It looks like the market’s really paying attention to some of the demand concerns. The one which has really taken over more so than others are what’s going on in China,” Commonwealth Bank commodities analyst Vivek Dhar told Reuters.
The black liquid did receive a boost from a larger-than-expected draw in U.S. crude oil supplies, accredited by investors to an increase in U.S. crude exports and a decrease in imports.
Wednesday’s data from the U.S. Energy Information Administration (EIA) showed a draw of 9.910 million barrels for the week ended Jan. 22, against the 430,000-barrel draw in forecasts prepared by Investing.com and the 4.351-million-barrel draw reported during the previous week. The draw was the biggest recorded since July 2020.
The EIA data also showed a build in gasoline stockpiles rose and a draw in distillate fuel inventories due to slightly lower refinery runs.
Data from the American Petroleum Institute released a day earlier showed a draw of 5.272 million barrels.
However, the COVID-19 pandemic is turning investors’ focus to weakening fuel demand as the emergence of new, highly contagious variants of the virus see the reintroduction of restrictive measures such as lockdowns in some countries.
U.K. Prime Minister Boris Johnson announced a clampdown on travellers from 22 high-risk countries that have reported variants, including South Africa. Travellers from the countries will be required to quarantine for 10 days and are barred from outbound trips for all but exceptional reasons.
Johnson also indicated on Wednesday that the lockdown currently in place in England, which began on Jan. 4, would last until Mar. 8.
However, fuel demand in China, the world’s largest oil importer, is of more concern to investors. The recent outbreak of COVID-19 cases is expected to put a dent into the Lunar New Year travel season, normally the countries busiest.
The Chinese Ministry of Transport forecasts that the number of trips that will be taken will increase 15% from 2020, during the first wave of COVID-19, but decrease 40% from 2019. This will make it difficult to expect the increased fuel demand that supported the market in 2020. Flights from Shanghai are already being cancelled, Commonwealth Bank’s Dhar pointed out.
“China, they were the ones supporting the market. If you have issues forming in China, that really puts a brake on the demand story for now,” he added.