Since the late 1990s, China has been the biggest beast in global oil markets, driving demand for oil and other commodities that it used to fuel double-digit economic growth every year for many years, and then high single-digit growth for years after that. . As of late 2017, China’s high economic growth rate still allowed it to overtake the United States as the leading economy The largest total annual importer of crude oil In the world, having become the world’s largest net importer of total oil and other liquid fuels in the world in 2013. From 1992 to 1998, China’s annual economic growth rate was basically 10 to 15 percent; from 1998 to 2004 between 8 and 10 percent; from 2004 to 2010 between 10 to 15 percent again; From 2010 to 2016 between 6 to 10 percent, and from 2016 to 2022 between 5 to 7 percent. From this point on, no one knows exactly where it will go, except that it will probably go down, and the main reason it’s going down is the country’s handling of Covid – specifically its ‘zero Covid’ policy. However, every choice for China as it moves from here regarding this policy — whether to stick to it or to ease it further — carries significant risks for the country and for its leader, Xi Jinping, with whom the policy is personally linked. . Whatever Xi’s choice, it will almost certainly result in an extended period of low oil prices. This, while unwelcome for oil companies and oil-producing countries, would be very welcome for many major developed economies and their citizens who have seen the rise in oil prices over the past few months play a major role in destroying their savings, pensions and pensions. quality of life. Related: The US Oil and Gas Drilling Business Is Going Nowhere
To summarize briefly, China’s zero Covid policy relies on strict lockdowns being introduced in entire regions, including major cities, immediately after a relatively small number of Covid-19 cases have been identified. December 2021 saw a revision of the zero Covid-in-one strategy that includes the idea of a ‘dynamic clearing’, which has given local governments more flexibility in imposing restrictions, allowing daily increases in symptomatic cases to be capped at About 200 cases on a national basis. On November 11, the Chinese government unveiled it 20 minor changes Under the zero covid policy, including overseas travelers who need only one negative PCR test within 48 hours of boarding a flight to China instead of two. Another was that foreign travelers would only have to quarantine for eight days, instead of 10, and another was that people inside China considered ‘close contacts’ of Covid-19 carriers would no longer need to be quarantined. The new guidelines also banned mass testing unless it was “unclear how the infection spreads” in an area.
Despite this slight relaxation of the rules, Chinese President Xi is now facing off wave of public protests Against still-tightening Covid-19-related restrictions across the country, a severity not seen since the mid-1980s peaked in 1989 Tiananmen Square massacre. The latest round of such protests began after at least 10 people were burned to death in an apartment fire in Urumqi, the capital of eastern Xinjiang province, where many blamed Covid-19 lockdown rules for delaying any response from emergency services. According to many live television reports at the time, the protests spread to many major cities, including Shanghai and Beijing, with demonstrators chanting “Step down, Xi Jinping! Step down, Communist Party!”. It seems that in the same way that the protests of the 1980s were largely motivated by a breakdown in understanding between the people and their government – that the former is content to conform to the controlled regime of the latter. Provided that they are given prosperity – so are the current protests. In order to thrive, though, economic growth is needed, and the more the better for the government, and therein lies its problem now.
President Xi is stuck between a metaphorical rock and a hard place. On the other hand, if he adheres to anything close to zero Covid restrictions — at this point, any meaningful restrictions at all — China’s economic growth will continue to deteriorate. In addition, the size and scope of protests against him and his regime is likely to increase. On the other hand, though, if he meaningfully relaxes China’s Covid-19 control measures, it is very likely that a large number of Chinese people will die, leading to exactly the same apocalyptic scenario that China will face if it sticks to its strict censorship policies. for Covid-19.
The reason there will be so many deaths as a result of any meaningful lifting of controls related to Covid-19 is that China still does not have an effective vaccine against the disease or any type of it, despite offers from all the major vaccine-producing countries to do so. supplies available to them. China also does not have an effective post-infection antiviral and still refuses to buy such supplies from foreign suppliers, again despite offers from several Western countries to make such antivirals and post-infection treatments available to them. Because of China’s initial response to the Covid-19 outbreak in 2019 – strict lockdowns in all regions – the country still has large numbers of its people without any vaccination against any kind of disease, even China’s (CoronaVac) vaccine and has an acute shortage of intensive care units.
“There are 263 million people in China over the age of 60 and 35 million over the age of 80, and the susceptibility of the elderly to severe cases of Covid-19 is well known,” Rory Green, chief China economist at TS Lombard, said in London. , exclusively OilPrice.com last week. “Among those over the age of 80s, only 66 percent have been vaccinated and only 40 percent have had three shots, and we know from detailed medical analysis of the Hong Kong outbreak that the CoronaVac vaccine has equivalent efficacy to mRNA vaccines only after three doses, so that leaves approximately 37 million over the age of 60 are vulnerable to large-scale outbreaks of Covid disease.After vaccinations, the main consideration in dealing with the outbreak of Covid-19 is to treat those who have been severely affected by the disease, and that means intensive care unit capacity in hospitals, but China has Big problem here too.”Various studies put the number of intensive care units per 100,000 people at between 3 and 6 in China — that compares to 2.3 in India and 34.7 in the US,” Green told OilPrice.com. The analysis at the national level is the regional variation in ICU coverage: the majority of ICUs in China are located in the wealthier eastern provinces, which tend to have higher vaccination rates and better demographic makeup, and local estimates take into account these factors. Citywide demographic and medical capacities assume that the most vulnerable city – Lijiang in Yunnan Province – will need a 6,000 percent increase in ICU capacity to adequately address the Omicron outbreak.”
So, how bad can things get for China? Green believes data from the Hong Kong outbreak in February 2022 likely offers the most relevant comparison. “Back to China CDC”. [Center for Disease Control] Accurate Estimates of Healthcare Delivery at the City Level If we use the February 2022 Hong Kong outbreak as a baseline for community prevalence and severity of cases, it is estimated that only 7.3 percent of China’s population lives in cities with sufficient ICU capacity, with another 92.7 percent living in metropolitan areas. The epidemic will completely overwhelm intensive care resources.” It highlights “The shock to a relatively unvaccinated population: based on Hong Kong’s death rate, China could see 50,000 deaths per day at the peak of an out-of-control outbreak.” Economically So: “In short, China is still really stuck and we think real GDP, as measured by TS Lombard, will come in at 1.6 percent year-on-year this year,” Green concludes.
Removing much of the economic power behind China’s large supply in global oil markets would mean a softer real demand background going forward for oil prices, particularly with any accompanying diminishing premium for the war between Russia and Ukraine. This premium started last September when savvy market players started buying oil on a basis Notes of US Intelligence Officers Very unusual Russian military movements on the Ukrainian border after the end of the joint Russian-Belarusian military exercises that took place. Prior to that, oil was consistently trading around the $65 per barrel Brent level. This level reflects the equilibrium price which took into account the already evident weak demand from China. With the premium to the Russia-Ukraine war dropping with Europe continuing to substitute energy from Russia for energy from other sources, as things stand, this $65 per barrel level is likely to be the baseline for oil prices from then on.
By Simon Watkins for Oilprice.com
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