China stockpiled oil in July despite weak imports, refinery runs: Russell
(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, Aug 16 (Reuters) - China's refinery processing and crude imports were unambiguously weak in July, but the world's largest oil importer still added to stockpiles, maintaining a trend of building inventories.
China added about 290,000 barrels per day (bpd) to either commercial or strategic crude inventories in July, according to calculations based on official data.
The July stockpile build reversed a draw of 470,000 bpd in June, and brought the total inventory additions for the first seven months of the year to around 1.02 million bpd.
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 total amount of crude available from imports and domestic output from the amount of crude processed.
Crude imports were 8.79 million bpd in July, up fractionally from June's 8.72 million bpd, but it's worth noting that June and July were the weakest months for imports in four years, and July's total was down 9.5% from the same month last year.
Domestic oil output was 4.03 million bpd, giving a total of 12.82 million bpd available to refineries.
Refinery throughput was 12.53 million bpd in July, the lowest daily rate since March 2020 and down from 13.37 million bpd in June.
The data indicate that refineries processed about 290,000 bpd less in July than the volume of crude available from imports and domestic output.
The question for the market is whether China's crude refining sector, and thus its appetite for imports, has shifted to lower output on a structural basis or whether the current weakness is temporary.
Certainly July's soft throughput numbers came amid prolonged maintenance outages at some major plants.
But there is also softer domestic fuel demand as the world's second-largest economy battles to bounce back from several COVID-19 lockdowns in the first half of the year, and the lingering threat of more to come amid Beijing's ongoing strict zero-COVID policy.
That said, assuming the economy continues to recover amid stimulus spending and China avoids widespread COVID-19 lockdowns, it would be reasonable to expect fuel demand to recover and refinery run rates to increase for the rest of the second half.
Even so, run rate gains may be limited.
Another factor weighing on refinery utilisation has been the lack of quotas for refined product exports, meaning that both large state refiners and smaller independent operators have been unable to benefit from surging profit margins for some refined fuels in Asia, especially diesel.
Shipments of refined products dropped 39% in the first seven months of the year to the equivalent of about 945,000 bpd as the export quotas issued declined relative to 2021.
While new quotas issued in June and July are likely to see a rebound in product exports in August, it's still expected that overall refined fuel exports will decline by at least 30% for the whole of 2022.
The overall picture for China's crude oil imports is for stronger domestic demand and a short-term boost from new product export quotas.
However, the outlook for refined fuels exports in 2022 is still bearish. Once the current quota allocation is exhausted, the lack of product shipments will once again be a drag on crude imports.
It's also worth noting that Chinese refiners have still been importing around 1 million bpd more than they needed in the first seven months of 2022, meaning they have the ability to draw down on inventories rather than import fresh crude, should they choose to do so.
Ongoing high prices for crude, other than from Russia, may also act as a drag on import demand for the rest of 2022.
However, if crude prices continue to soften amid demand concerns, and major exporters to China such as Saudi Arabia start to reverse recent high official selling prices, Chinese refiners may decide to increase imports.
GRAPHIC-China crude available vs refinery runs: Link
Editing by Edwina Gibbs
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