- Sep 12, 2022, 7:00 PM CDTJoin Our Community
The sharp drop in crude oil prices last week on news that China had extended a Covid-19 lockdown in Chengdu, the capital of the southwestern province of Sichuan, for the majority of its 21 million residents, again highlighted the capacity for such news to cause major sudden falls oil prices in a market characterised by uncertain demand and supply. As the largest annual gross crude oil importer in the world, . in this regard in 2017 , China has long been the global backstop bid in the oil market.
To a large degree, China’s adherence to its zero-Covid policy, in which ultra-tight lockdowns are introduced across entire cities immediately that a relatively miniscule number of Covid-19 cases are identified, has been a product of the country’s own early success in handling the pandemic.
Back at the end of July, then, all of this had translated into radically reduced economic growth projections for China, with the corollary dampening effect on oil prices. Two of the most consistently correct analysts on China in recent years - Eugenia Fabon Victorino, head of Asia Strategy for SEB, and Rory Green, TS Lombard’s head of China and Asia research – had already downgraded their GDP growth estimates for China earlier in the year but did so again.
The probability of further lockdown-related oil price shocks in the next few weeks looks high, given that the Mid-Autumn Festival holiday began on 10 September and that Golden Week begins on 1 October. The Chinese government has already warned people against travelling during these upcoming major holidays.