It’s starting to look like Saudi Arabia’s concerns over the oil demand recovery were well-founded. At the start of the month, the joint leader of the OPEC+ group of oil-producing countries announced a surprise output cut of 1 million barrels a day for February and March. Its co-chair, Russia, pushing for restraints to be eased, was granted a small output increase in each of those two months.

When Saudi Energy Minister Prince Abdulaziz Bin Salman made the unilateral decision to cut output — keeping the idea from fellow OPEC+ members to prevent leaks — he pinned it on fears that the recovery in oil demand was not as strong as it appeared. That appears to have been wise.

Although cold weather across northern Asia has boosted demand for heating fuels, there are worrying signs that the recovery in transport fuel has not only ground to a halt but has actually gone into reverse in some key areas. Rising Covid-19 cases in northern China have led to the imposition of restrictions to discourage travel for the week-long Spring Festival holiday. All travelers are now required to present a negative Covid-19 test result and holders of air tickets can get refunded or reschedule their flights for free.

Source Credit: Bloomberg