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Despite Massive COVID Wave, High-Frequency Indicators Show China’s Traffic Congestion Rebounds

China abruptly reversed the zero-Covid regime that isolated the world’s second-largest economy for nearly three years. High-frequency data shows highway congestion is rising, which could indicate a surge in crude demand in 2023. 

BloombergNEF published a note that found China’s road congestion index rebounded from the previous week. The index includes highway congestion from 15 major cities, which jumped by 58.2% versus a week earlier. And what this means is that mobility is increasing across China despite the resurgence of Covid-19 infections. 

China’s exit from zero-Covid (more on what the reopening means for the economy and markets) could indicate crude consumption for the country might begin to tick up in the first quarter of 2023 and accelerate in the back half of the year if the reopening process is smooth. 

Since 2020, strict lockdowns and quarantines have impeded mobility by road inside China. For the first ten months of this year, passengers traveling by road were down 82% versus the same period in 2019. As restrictions ease, travel demand will increase and eventually rebound as urban and long-distance highway travel resumes. This would boost oil consumption. 

“China’s total consumption is set to rise by 1.0 million b/d or more by the end of 2023 as travel restrictions unwind and manufacturing recovers,” Reuters noted. As we explained last month, China has already increased oil imports for reopening. 

The problem with China reopening is there might not be enough spare crude production capacity to satisfy demand by the second half of 2023. Crude supply remains constrained by OPEC+ output limits, sanctions on Russia, and a lack of US crude production, so if there’s no global recession next year, the likelihood of renewed upward pressure on crude could take hold.

… and maybe former Russian President Dmitry Medvedev’s bullish outlook for $150 Brent is something to note. 

This post was originally published on this site

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