Welcome to China's demand returned to normal edition of Oil Markets Daily!
China's implied oil demand is coming in stronger than expected and higher year over year. How do we know that? You can cross-check two data points: 1) Refinery throughput or the number of refined products hitting the market and 2) refined product storage or the implied demand.
In this case, if refinery throughput is higher y-o-y but product storage still dropped, it implies higher demand. If refinery throughput is higher y-o-y but product storage built, then demand is lower y-o-y.
While this is a very "crude" way of doing it, it has worked in the past and is one of many signs we watch.
For September, Chinese refinery output was ~1.3% higher y-o-y. All the while, product storages declined.
In addition, China is the only country right now that has seen its domestic flight back to the previous level.
And other anecdotal data like traffic congestion in major cities suggest that China's oil demand has indeed returned to the norm.
And even Wuhan has returned back to the norm.
In essence, oil consumption in China will be the first and best barometer of just how much global oil demand will return once the COVID-19 pandemic is behind us. Over the weekend, we published a subscriber-exclusive report titled "The Risk Of An Oil Super Spike Grows With Each Passing Day." And in it, we talked about how global air travel will rebound materially once countries stop imposing restrictions.
While China is only one country, it's the start of this COVID-19 pandemic, and for demand to have rebounded back to full after just 10 months later should tell you something about the resiliency of oil consumption.
Lastly, given China's oil demand consumption has returned back to the norm and its floating storage falling at a rapid clip, we expect Chinese crude buying to be very strong at the beginning of November.
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