Save for later Print Download Share LinkedIn Twitter The reopening of China will go far in determining the trajectory of oil markets in 2023. It has taken less than 10 days for Beijing to dismantle large parts of its strict zero-Covid-19 policy, which kept death rates low over nearly three years but increasingly strangled the economy of the world's most important oil market. The policy U-turn has arrived earlier and unfolded faster than expected, and it could lead to a strong oil demand rebound from the second quarter of 2023 after a dismal 2022 performance. Beijing’s turnaround came after it struggled to contain a wave of the highly contagious but less dangerous Omicron variant, and faced growing protests against the excesses of its zero-Covid-19 policy. “After movements were relaxed, we are more cautious about moving around. Once people accept Covid as a normal event, oil demand will rebound,” a Chinese analyst with a domestic oil consultancy told Energy Intelligence. He added that the rebound would likely be more evident in the second quarter than in the first, as Covid-19 infections would likely remain high in the first quarter. Indeed, Beijing streets, restaurants and shops were deserted this week amid reports of widespread cases in the capital and limited medical supplies. Multiple Covid-19 lockdowns this year, starting in Shanghai in April and May, have crippled Chinese oil demand. China’s apparent oil demand in the first 10 months of 2022 was 13.168 million barrels per day, down 2.7% from the same period a year ago and down 386,000 b/d from full-year 2021, Energy Intelligence calculates. Chinese demand will likely fall year on year for the first time in two decades in 2022. Next year, Energy Intelligence expects global oil demand to increase by 1.6 million b/d — with China contributing 700,000 b/d of that. China’s 2023 oil demand was already expected to recover strongly from this year based on expectations that Covid-19 restrictions would start to ease next spring. Provided that health care facilities do not get overwhelmed and force Beijing to backtrack, an earlier reopening could prompt an upside demand surprise. Following Beijing's Covid-19 policy tweaks last week, the International Energy Agency revised up its 2023 demand growth forecast for China’s total products by 40,000 b/d to 820,000 b/d — up 5.5% from 2022 and up 2.5% from 2021. A nationwide mobile tracking app that collected data on users’ travel movements was shuttered on Monday, opening the way for domestic travel to resume unhindered ahead of the Chinese New Year holiday on Jan. 23. This could see China’s oil demand grow by 1% year on year in the first quarter, against earlier expectations for a small loss, according to oil consultancy Energy Aspects, with gasoline demand rising by 15% to 3.8 million b/d in the first quarter of 2023 from this quarter, and jet fuel demand surging by 66% to about 750,000 b/d. Whether travelers are allowed to move freely around China next month, and whether ensuing Covid-19 outbreaks can be managed in rural areas, will be two major tests for China’s opening. Refinery ramp-ups will add to the positive demand backdrop in China. However, steady crude import quotas and potentially lower product export quotas could serve as headwinds to the demand recovery, particularly if Beijing returns its focus to capping the refining sector’s carbon emissions. China’s crude imports for the first 11 months of this year were 1.4% below 2021 levels at 10.11 million b/d and on track for a second consecutive yearly fall. However, new refining and petrochemicals complexes — private Shenghong Petrochemicals' 320,000 b/d refinery in Jiangsu province and PetroChina's 400,000 b/d Jieyang complex in Guangdong — have helped boost Chinese crude imports this quarter and will lead to further increases in 2023 when the plants come fully on stream. Small refiners, also known as teapots, will likely remain under scrutiny after another round of tax audits was conducted this summer, as Beijing pressures older, polluting plants to shutter. China’s Ministry of Commerce has set the ceiling for crude imports by nonstate refiners at 243 million tons (4.88 million b/d) for 2023, unchanged from 2021 and 2022, confirming that unfettered growth of China’s refining sector is something of the past.