LAUNCESTON, Australia, Sept 16 (Askume) – China’s crude oil stocks rose by the most in 14 months in August, confirming the surge in imports was driven by inventories rather than improving fuel consumption.
Commercial or strategic inventory increases totaled 1.85 million barrels per day, according to official data.
This is the largest inventory inflow since June 2023, when inventories rose by 2.1 million barrels per day, and a significant increase from the 280,000 barrels per day increase in July.
China does not disclose the amount of crude oil moving into or out of strategic and commercial reserves, but it can be estimated by subtracting the amount of crude oil processed from the total amount of crude oil imported and produced domestically.
Data released by the National Bureau of Statistics on September 14 showed that Chinese refineries processed 59.07 million tonnes of crude oil in July, equivalent to a daily processing capacity of about 13.91 million barrels.
This was slightly up from July’s 13.908 million bpd, which was the weakest month for refinery throughput since October 2022.
Crude oil imports by the world’s largest crude oil importer stood at 11.56 million barrels per day in August, domestic production was 4.2 million barrels per day, and total available refinery capacity was 15.76 million barrels per day.
Subtracting the processing volume of 13.91 million barrels per day, the remaining volume is 1.85 million barrels per day.
In the first eight months of this year, China’s reserves rose by 1.11 million barrels per day, an increase of about 300,000 barrels per day compared with the same period last year, and by 800,000 barrels per day in the first seven months of this year.
With refining processing still weak, the question is why are Chinese refiners buying additional crude oil for August delivery?
The answer is likely to be a downward trend in prices that is common when cargoes are scheduled to arrive in August.
Effect on price
Cargoes scheduled to arrive in August are likely to be those in May and June, when global crude oil prices were on the downside.
Global benchmark Brent crude oil futures hit their highest level so far this year at $92.18 a barrel on April 12, before starting to fall to a low of $75.05 on August 5.
This means that Chinese refineries may be incentivized to buy more crude during this window, meaning imports are likely to be much stronger in August and September than in the first few months of the year.
However, Brent crude rose slightly after the August 5 low, hitting a high of $82.40 a barrel on August 12, and then remained in a tight range around $80 until the end of the month.
Since then, global demand concerns, especially from China, have caused Brent crude oil to fall sharply, hitting a 32-month low of $68.68 a barrel during trading on September 10.
The contract then improved slightly and closed at US$71.61 per barrel on September 13.
Past buying patterns by Chinese refiners show they have become price-sensitive in recent years, buying extra crude when they think oil is cheap but turning to inventories when they think prices are rising too much or too fast.
In some ways, this has had the effect of stabilising the market, as weaker prices attract more shipments to China, while any strong increase leads to lower volumes, which limits price increases.
If China does smooth out the market in some sense, it could be mixed news for export groups such as OPEC+.
This means that when prices fall, China buys more goods, but vice versa, even if prices rise due to demand, it becomes more difficult to maintain the increase.
China has demonstrated its ability to accommodate imports of about 2 million barrels per day depending on specific circumstances.
While around 2% of the global crude oil market may not sound like a lot, it is about 5% of total seaborne volumes, so it could be enough to have an impact on prices.
The views expressed in this article are those of the author, a Askume columnist.
The views expressed are solely the author’s own. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
