November 8, 2022 [Reuters] – China’s imports of crude oil rebounded in October, but the details aren’t as strong as the headline number suggests.
The world’s largest crude buyer imported 10.16 million barrels per day (bpd) in October, the highest since May and a 14% leap from the same month in 2021, according to data released on Monday by China customs.
There were several factors driving the increase in October, but a strong demand-led recovery is unlikely to be one of them.
Rather, it was a combination of crude being imported to build operating inventories for two new refinery units, a lower price versus prior months, more import quotas for independent refiners and an ongoing boost to exports of refined fuels.
PetroChina started trial operations at a 200,000 bpd crude unit at its new refinery in Guangdong, while Shendong Petrochemical is also starting operations at its new 320,000 bpd plant in Jiangsu province.
Refinery units typically need about three weeks of operating inventories, suggesting the two new plants would require almost 11 million barrels of crude to fully commence operations.
This additional crude would likely have been secured over a period of months, but it still adds to China’s incremental imports in recent months, but is also a factor that won’t be ongoing.
China’s refineries also are likely to have stepped up imports in October on the back of cheaper global crude prices, with benchmark Brent futures trending lower from July to late September, coinciding with the period when term and spot cargoes would have been arranged.
Brent dropped from a high of $110.67 a barrel on July 29 to a low of $83.65 on Sept. 26, and has since trended higher to $97.93 in early Asian trade on Tuesday.
Saudi Arabia, the world’s biggest crude exporter and normally China’s top supplier, also lowered its official selling price (OSP) for October-loading cargoes, which may have encouraged refineries to buy more oil.
Saudi Aramco, the state-controlled oil giant, cut the OSP for its benchmark Arab Light blend for Asian customers to a premium of $5.85 a barrel over Oman/Dubai quotes, from $9.80 for September-loading cargoes.
This appears to have resulted in China boosting imports from the kingdom, with Refinitiv Oil Research estimating that October arrivals were 1.91 million bpd, up from 1.84 million bpd in September.
IMPORTS, EXPORT QUOTAS
Crude imports have also been boosted by the granting of additional quotas to independent refiners, with Zhejiang Petrochemical Corp being awarded 10 million tonnes, or about 73 million barrels, and ChemChina getting about 32 million barrels.
The additional quotas are likely to boost imports over the fourth quarter as refiners boost purchases in order to fully utilise their allocations.
Rising exports of refined products are also acting as a spur to crude imports, with 4.46 million tonnes of fuel being shipped out in October.
While a detailed breakdown by product type will be released late this month, using BP’s product basket conversion rate of 8 barrels to a tonne, it implies that China exported about 1.15 million bpd in October.
This was down from September’s 1.5 million bpd and August’s 1.23 million bpd, but it’s worth noting that the past three months have been strongest since July last year.
Product exports have increased rapidly in the last three months, but are still down 24.5% for the first 10 months after a weak first half.
With profit margins for refined fuels still high, especially for diesel, it’s likely that Chinese refiners will be pressuring Beijing to keep granting export quotas in order to cash in.
The looming ban on European imports of Russian crude and products is also likely to keep margins high in coming months.
Overall, China’s crude imports are likely to remain at reasonably robust levels in the fourth quarter, driven largely by temporary factors, but also by higher refined fuel exports, but whether these continue is still to be determined.
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