December 16, 2024 [Reuters]- China’s crude oil imports in November hit a 14-month high, but much of the additional volume is likely to have ended up in storage as refinery processing remained subdued.

China, the world’s biggest crude importer, had a surplus of about 1.77 million barrels per day (bpd) in November, according to calculations based on official data.

This is the second-biggest monthly surplus this year and behind only the 1.85 million bpd in August.

The scale of the excess crude erodes any bullish interpretation of the rebound in November’s oil imports.

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.

China’s refineries processed 58.51 million metric tons of crude in November, equivalent to about 14.24 million bpd, according to data released on Monday by the National Bureau of Statistics.

This was up a tiny 0.2% from November last year, marking the first month in seven that refinery throughput has risen from the same month in 2023.

China imported 11.81 million bpd in November, the strongest month since August last year and up 14.3% from November 2023.

Domestic output rose 0.2% in November from the year-earlier month to 4.20 million bpd.

Combining imports and domestic production gives a total of 16.01 million bpd of crude available to refineries.

Subtracting the volume processed of 14.21 million bpd leaves a surplus of 1.77 million bpd.

For the first 11 months of the year, China’s surplus crude was about 1.12 million bpd, about 360,000 bpd more than what was stored over 2023 as a whole.

It’s worth noting that not all of this surplus crude is likely to have been added to storage, with some being processed in plants not captured by the official data.

But even allowing for gaps in the official data, it’s likely that China has been importing crude at a far higher rate than it needs to meet its domestic fuel requirements.

LOWER PRICES

The question is why are China’s refiners buying vastly more crude than they are processing?

It’s quite clear that domestic fuel demand is not strengthening, and may have already peaked when it comes to gasoline given the surge in sales of electric vehicles.

Diesel demand is also weaker, having been hit by the switch to trucks powered by liquefied natural gas.

It’s more likely that China’s refiners are stocking up on crude because they deem current prices to be reasonable and they are hedging against any rally next year.

Global benchmark Brent crude futures were in a downtrend at the time when November-arriving cargoes would have been arranged.

Brent went from a high of $87.95 a barrel on July 5 to a low of $69.00 on Sept. 11, just around the time that many of November’s cargoes would have been arranged.

Since the September low Brent climbed to a peak of $81.16 a barrel on Oct. 7, but if this rally did cause China’s refiners to ease back on purchases, this will only show up in cargoes arriving in January.

However, since the October high, Brent has eased back to trade in a fairly narrow range anchored around $73 a barrel, which is a level likely to be low enough to encourage ongoing buying interest by China’s refiners.

The trick for the oil market is not to confuse higher imports by China with a recovery in actual consumption of fuels.

While stronger imports will act to support crude prices, it will take a sustained recovery in refinery processing to convince the market that China is once again showing solid oil demand growth.