• China likely to see even higher stock levels in March
• Feeble demand for oil products discouraging run rates
• Crude oil arrivals seen recovering as logistics improve

Adding to this, weak demand for oil products at home was also discouraging some state-run and independent refiners from keeping run rates at higher levels, market participants and analysts said.

The country’s crude stocks rose by 69 million barrels by the end of February, compared with levels seen in end-December. The change in volumes in the two-month period was 3.1% higher than the increment of 67 million barrels that was seen in the same period a year earlier, S&P Global Platts calculations based on latest official data showed.

In March, China could witness a further rise in stocks because of plentiful imports, while operations at a few refineries remain suspended for maintenance. PetroChina’s 200,000 b/d Sichuan refinery and Sinopec’s 260,000 b/d Gaoqiao refinery started their maintenance program this month.

“Demand for oil products is slower than expected, and this will further weaken China’s throughput in March,” Wang Zhuwei, senior analyst with S&P Global Platts Analytics, said. “Usually, demand for oil products sees a recovery in March following the [Lunar] New Year holidays,” he added.

Gradual restocking of gasoline was seen at private storage tanks during the first two weeks of March. Those weeks witnessed a year-on-year growth of 4.5% in gasoline stocks, faster than the year-on-year growth rate of 2.7% in same period of last year, according to JLC data.

China does not release official data on stocks. Platts calculates the country’s net build or draw on crude stocks by subtracting the official refinery throughput data from the country’s crude supply data. The latter takes into account net crude imports and domestic production.

Latest data from the General Administration of Customs showed China’s crude oil imports over January-February jumping 10.8% from a year ago to 9.06 million b/d, pushing up the country’s crude supplies over the two-month period by 6.9% year on year to 12.78 million b/d.

China’s crude oil imports are expected to rise to over 9 million b/d in March, from 8.45 million b/d in February, as logistics returned to normal after the Lunar New Year holidays, market sources said.

Throughput

Data from the National Bureau of Statistics showed that the country’s overall throughput rose 7.3% year on year to 11.6 million b/d in the January-February period, with the startup of PetroChina’s and CNOOC’s new facilities in the second half of 2017. Independent refineries also lifted their average operating rates by 11 percentage points to 67.7%.

Looking ahead, crude oil stocks would continue to rise in March as imports are set to pick up, trade sources said.

Platts survey showed that an estimated 2.27 million b/d of crude oil would be discharged for independent refineries at the Tianjin and Shandong ports in March, 10.7% higher than the 2.05 million b/d discharged in February.

But independent refiners have cut throughput in March because of relatively narrower profit margins amid tighter consumption tax controls and slow demand for oil products.

Independent refiners without crude quotas are not allowed to crack imported crude oil. These refiners had used loopholes in the old tax reporting system to report their crude oil purchases as fuel oil in order to avoid the taxes, and also being able to crack crude oil.

But this loophole has closed. All companies are now required to book their deals using a new tax reporting system — effective from March 1 — which would be able to track the entire transaction chain for every crude oil cargo. Moreover, the tax cost for refining crude had also risen following the implementation of the new system, discouraging buying of cargoes.

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