January 19, 2024 [Reuters]- China boosted the volume of crude oil being stockpiled in December as lower prices encouraged refiners to lift imports and maintain high levels of throughput at their plants.
About 1.39 million barrels per day (bpd) were added to inventories in December, up sharply from about 20,000 bpd in November and the highest flows to storage tanks since June last year.
For 2023 as a whole China added about 760,000 bpd to stockpiles, up slightly from the 740,000 bpd in 2022.
China doesn’t disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.
The total volume of crude available in December was 15.54 million bpd, consisting of imports of 11.39 million bpd and domestic production of 4.16 million bpd.
Refineries processed 14.15 million bpd in December, leaving a surplus of 1.39 million bpd available for commercial or strategic storages.
The strong storage flows in December fit with the pattern established over 2023, whereby refiners tend to build stockpiles when they deem oil prices to be low, but they pull back when they believe prices have risen too fast or too high.
The first half of 2023 saw strong inventory builds, averaging 950,000 bpd, with a peak of 2.1 million bpd in June.
The June storage flows came after global benchmark Brent crude futures fell to their lowest in 2023, hitting $70.12 a barrel on March 20.
Given the lag between when cargoes are arranged and physically delivered, it’s clear the China’s refiners snapped up crude when prices were soft in March, with that oil arriving in June.
Conversely, when Brent started to rally strongly after Saudi Arabia, the de facto leader of the OPEC+ group of exporters, announced an additional 1 million bpd output cut at the end of June, China’s refiners started to pare imports and flows into storages.
They even went as far as to dip into inventories in July and September, when processing exceeded the total available crude.
However, when crude prices started to decline in the fourth quarter amid concerns over the state of global demand, China started lifting imports and resumed building inventories.
STORAGE TO CONTINUE
The Brent price has stabilised in a $70-$80 a barrel range so far in 2024, a level that is likely to encourage China’s refineries to build inventories, especially if they take the view that prices are likely to rise over 2024 on the back of a recovering global economy or the risks to supply from a widening conflict in the Middle East.
China’s refiners are reported to be in the market for additional crude volumes for March and April delivery, according to trade sources.
It’s also likely that China’s refiners will seek to keep exports of refined products at fairly high levels in coming months, given the availability of export quotas and the relatively good margins available in Asia for diesel and gasoline.
China exported about 1.37 million bpd of refined fuels in 2023, which was up 16.7% from the year earlier and the most since 2019.
The profit margin on a barrel of gasoil, the building block for diesel and jet fuel, ended at $23.23 in Singapore on Wednesday, down from $23.80 the previous day but up from the five-month low of $20.41 reached on Dec. 27.
The margin on a barrel of gasoline in Singapore was $10.90 on Wednesday, up from $10.81 the prior day and 30% above the recent low of $8.37 on Jan. 9.
The opinions expressed here are those of the author, a columnist for Reuters.
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