May 31, 2023 [Energy Intelligence]- China’s apparent oil demand topped 16 million barrels per day in April, setting a new all-time-high just a month after it broke through the 15 million b/d mark for the first time.
The surge came as refiners took advantage of healthy domestic refining margins, which have been bolstered by imports of cheap Russian crude feedstock.
China’s oil demand rose by 5% from March to 16.06 million b/d in April, Energy Intelligence calculates, based on its refinery throughput and net imports of 11 refined products.
April demand also showed an increase of 26.1% over April 2022, when demand crashed amid a strict two-month Covid-19 lockdown in Shanghai — a city of 25 million people.
Feedstock Imports Surge
Disappointing economic data for April has prompted concerns that China’s post-pandemic rebound may have already hit a ceiling.
But in terms of oil demand, April was a bullish month, with demand for all of the main categories of refined products rising versus March.
China’s fuel oil imports hit a 10-year high of 2.67 million tons (592,000 b/d), as small independent “teapot” refiners imported large volumes of discounted heavy fuel oil feedstock from Russia.
Industry sources say they complemented those purchases with substantial imports of Russian naphtha to blend and lighten the fuel oil feedstock.
China’s overall imports of naphtha surged to a record high of 1.26 million tons (357,000 b/d), Energy Intelligence estimates.
China imports Russian fuel oil and naphtha directly, but small industry players have also increased their imports of these two products via Singapore and Malaysia.
A recent increase in customs inspections has led to a big drop in imports of “bitumen mix,” which were often clandestine imports of sanctioned heavy Iranian crude, industry sources have said.
This has forced teapot refiners to replace bitumen mix with fuel oil, if they have already exhausted their crude oil import quotas.
Chinese customs data show only 121,000 tons of bitumen mix entering the country in April, against 1.4 million tons in March.
China’s liquefied petroleum gas (LPG) imports surged above 800,000 b/d for the first time to reach 2.21 million tons (856,000 b/d) as several propane dehydrogenation units came online.
Some of those volumes are believed to have been imported from Iran.
The rise in imports of naphtha and LPG signal a rebound in petrochemicals demand in China.
The rapid recovery seen in China’s gasoline demand recovery in the first quarter of this year has largely run its course.
All eyes are now focused on diesel — which is regarded as a barometer of industrial activity — and on jet fuel.
China’s industrial production has disappointed observers, falling 5.7% in April versus March, and more than offsetting cumulative gains in the first quarter, according to analysts at JP Morgan.
However, domestic demand for diesel in April still rose by 7.1% from March.
Diesel demand may take a hit from annual fishing bans in May-July (to preserve fish stocks) but any moves by the government to boost infrastructure construction would support demand for the product.
The recovery in China’s demand for jet fuel is expected to continue, but at a slower pace, given that domestic air travel is already running above pre-pandemic levels now.
Going forward, most of the remaining demand growth is expected to come from international air travel — which depends on decisions by Chinese authorities and has been picking up more slowly.
The seven-day average for international flights edged up to 39.4% of its pre-pandemic level on May 21 from 38.9% a week earlier, Nomura Global Economics estimates, based on Variflight data.
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