September 28, 2020 [Reuters] – China’s rate of storing crude oil slowed for a second month in August, as the massive of surge of imports started to ease in a trend likely to extend in the coming months.

The flow of crude into commercial and strategic stockpiles was around 1.1 million barrels per day (bpd), according to calculations based on official data for crude imports, domestic output and refinery runs.

China doesn’t disclose flows into the nation’s Strategic Petroleum Reserve (SPR) or commercial storage tanks, but an estimation can be made by deducting the amount of crude processed from the total amount of crude available from imports and domestic output.

China’s crude output was 16.65 million tonnes in August, while imports were 47.48 million tonnes, giving total available crude of 64.13 million tonnes, or about 15.1 million bpd.

Refinery throughput in August was 59.47 million tonnes, equivalent to about 14 million bpd, leaving the difference between the two at 1.1 million bpd.

That was down from 1.92 million bpd in July, and well below the 2.77 million bpd seen in June.

They were also below the 1.79 million bpd average for the first eight months of the year, although still higher than the 940,000 bpd for 2019 as a whole.

This slowing comes as the last of the surge of cheap crude bought by Chinese refiners during the brief producer price war in April is finally being offloaded.

The four months from May to August have been the strongest on record for China’s imports of crude oil, with June the highest at 12.9 million bpd.

The massive buying by the world’s largest crude importer during the price collapse, which occurred after Saudi Arabia and Russia said they would flood the market, resulted in a queue of tankers idling off China’s ports.

While the price war was brief and ended with a new output restriction agreement among the producers in the group known as OPEC+, the aftermath is still lingering.

The resulting flood of crude is gradually being offloaded, but Refinitiv Oil Research said there are still substantial logjams, with at least 12.5 million tonnes, or 91.25 million barrels, still offshore awaiting discharge as of Sept. 9.

Tankers carrying heavy sour crude – generally more sought after by China’s modern, complex refineries – are waiting for a week to discharge, while those carrying light, sweet grades may spend a month before getting a slot, according to Refinitiv.

This means September’s imports, and thus storage flows, are likely to remain elevated, but should also continue to moderate back to what could be considered more normal levels.

CHINA IMPORTS, STORAGE TO EASE

The bigger question is what happens after China finally offloads the last of the cheap crude.

Does it take a while to digest all the cheap oil it gorged on? Or does it continue to import at pre-price war levels and keep the extra crude as strategic storage?

Certainly, its main suppliers in the Middle East, such as Saudi Arabia, have moved to lower their official selling prices (OSPs) for October-loading cargoes, perhaps an effort to keep Chinese buying interest at robust levels.

Exports from the Americas may be something of a canary in the coal mine in this regard, with China’s imports from the United States and Brazil likely to reach record highs in September, but then slip in October.

Refinitiv data shows that China is likely to import 1.4 million bpd from Brazil in September, some 33% above the previous record from January this year.

Imports from Brazil, however, will likely slip to around 400,000 bpd in October, the data also shows, assuming that cargoes arriving in September aren’t pushed by port congestion into October.

Similar to Brazil, China’s imports from the United States will likely hit a record 876,000 bpd in September, before dropping to around 660,000 bpd in October.

If the pattern for Brazil and the United States is an indicator of China’s overall import trend, then October should result in a pullback in crude arrivals.

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