Volatility Continues: Refiners cut Output drastically amid major Ports Shutdown in China

Shanghai, one of the world's busiest ports and home to China's financial hub, has increased restrictions in numerous areas of the city on Friday, April 1st, after an unprecedented surge in covid cases. The Shanghai Port was already experiencing huge delays, and the extension will exacerbate port congestion and raise transportation expenses even further. These restrictions have resulted in significant delays at Shanghai's port, which is located in the city's eastern outskirts and was already congested. According to data from both cities' port administrations, the port of Shanghai handles more than four times the amount recorded at the Port of Los Angeles in 2021.

China's demand, particularly for gasoline, has dwindled in recent weeks as the government maintains its "zero-tolerance COVID" policy. The return of severe lockdowns as China battles its biggest coronavirus outbreak in two years has forced market experts to decrease their predictions for oil demand in this quarter and for the entire year of 2022 since China is the world's top oil importer.

As per the industry experts, Chinese refiners are all set to diminish their refinery runs at the largest scale in the upcoming month by 900,000 barrels per day (bpd). The refineries are projected to cut runs by roughly 1 million bpd this month, which is equivalent to 6.3 percent of typical Chinese refinery output in previous months.

According to the International Energy Agency (IEA), Oil demand will average 99.4 million bpd this year, down 260,000 barrels per day from its forecast for 2022 due to the reintroduction of severe Chinese lockdowns. OPEC also lowered its oil demand growth forecast for 2022 by over 500,000 bpd in the second part of the first quarter, citing weaker predicted global economic growth, the Russian war in Ukraine, and the reintroduction of COVID lockdowns in China.