China's Sudden Rise In Air Travel Could Add Extra Pressure On Global Oil Demand

The Chinese are back in the air.

As the world's second-largest economy recovers from the sudden opening of its zero-COVID policies late last year, air travel in the country is ramping up quickly.

Domestic and international flights in China have been shooting up since January, and they're getting very close to pre-pandemic levels.

Last week, the amount of active flights in China reached an average of 13,500 a day, equal to levels of the same week in 2019, according to air survey data site Airportia.

Total miles flown are about 10% below the same week in 2019, but dramatically above levels seen in April of 2020 and 2022, when lockdowns put in place by the Chinese government were at their strictest.

Last year, the three largest Chinese air carriers lost about $5 billion each due to hard zero-COVID policies, according to Reuters.

Now the tables are turning. While there have been only about 67,000 international flights to or from China this year, the country has already registered more than 1,2 million domestic flights. 

The collective 1,341,750 flights mark a 71% increase from last year's levels

Impact On Global Oil Prices

China's return to commercial air travel could have an effect on the price of global commodities associated with air travel.

The oil supply chain is facing an array of challenges in the coming years. While gas prices in the U.S. have apparently reached their short to medium-term peak, cuts in oil production by OPEC+ countries are beginning to weigh on global oil prices.

A hike in demand for oil as the world resumes air travel, and specifically as China leaves lockdown measures behind, can put extra pressure on an industry with increasingly reduced margins, causing prices to spike.

In March, the International Energy Agency raised its estimates for global oil consumption after it became clear that China's reopening was causing its air industry to get back on track.

By the last quarter of this year, global demand for jet fuel and kerosene should be at 94% of the fourth quarter of 2019.

An April report by the IEA put the global rise in oil demand at 2 million barrels a day, pushed in 90% by non-OECD countries of which China represents its most significant part.

In January, 11 analysts told Bloomberg that China is expected to increase its oil consumption at a rate of 800,000 barrels a day, on average. This would take China's oil consumption to a yet unseen historical high.

Oil Stocks: ETFs and companies in the crude oil sector were in the green on Monday at the time of this writing.

• ProShares Ultra Bloomberg Crude Oil ETF UCO is up 1.9% today.
• Invesco DB Oil Fund ETF DBO is up 1.2%.
• Chevron Corporation CVX is up 1.2%
• BP plc BP is up 0.6% today
• Shell PLC SHEL is up 0.5%
• Hess Corp. HES is up +0.65%.
• Marathon Petroleum Corp MPC is up +1.6%
• Phillips 66  PSX is up 0.5%.
• Exxon Mobil Corp XOM is up 2.2%.
  
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