China is continuing to import more crude oil than it needs as weak refinery processing rates, soft domestic demand and constrained exports of refined fuels combine to boost the building of stockpiles.
China, the world's biggest crude importer, added about 2 million barrels per day (bpd) to oil inventories in April, according to calculations based on official data.
This was up from about 610,000 bpd being added to commercial or strategic stockpiles in March, and took the storage flows to about 960,000 bpd for the first four months of 2022.
The flow of barrels into storage tanks comes amid reports that China is negotiating to buy Russian crude to boost its strategic petroleum reserve (SPR), taking advantage of huge discounts as other, mainly Western buyers, shun Russian oil in the wake of Moscow's invasion of Ukraine.
CLOSELY HELD DATA
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 10.47 million bpd in April, while domestic output was 4.14 million bpd, giving a combined total of 14.61 million bpd available to refineries.
Refinery throughput was 12.61 million bpd in April, meaning that refiners processed about 2 million bpd less than supply available to them.
April's refinery throughput was the lowest since March 2020, reflecting weaker fuel demand amid ongoing lockdowns aimed at eliminating the spread of COVID-19 in several cities, including the financial and port hub of Shanghai.
With a multitude of factors currently influencing oil markets, the question is whether China's storing of crude is likely to have a significant impact in coming months.
On the face of it, China buying 2 million bpd more than it needed in April is bullish for crude prices, because if China hadn't taken that crude, it's possible the additional supply may have put a lid on prices.
But it's also worth noting that physical crude cargoes are arranged months in advance, so April's imports were largely bought prior to the Feb. 24 Russian invasion of Ukraine, and also at a time when Chinese oil refiners wouldn't have anticipated such a long lockdown in Shanghai.
China is expected to increase crude imports slightly in May from April's level, with Refinitiv Oil Research estimating arrivals of 10.53 million bpd, up from the previous month's 10.47 million bpd.
It's likely that May will also see refinery processing rates recover somewhat, given some signs that Shanghai and other cities are gradually re-opening, although Beijing's strict zero-COVID policy means the risk of new lockdowns remains.
What seems likely in coming months is that China boosts crude imports, especially from Russia, in order to take advantage of steep discounts.
This in turn is likely to force other suppliers to China, especially Iran and Venezuela, to make their crude available at cheaper prices, since China is their major customer as it is prepared to defy U.S. sanctions on buying from those two producers.
Another uncertainty is whether Chinese refiners will return in force to the export market for refined fuels.
They have dramatically cut their exports in recent months amid a lack of available export quotas.
Exports of diesel slumped to 530,000 tonnes in April, down from 2.72 million tonnes in the same month last year, while shipments for the first four months of the year plunged 82% to 1.61 million tonnes.
Gasoline exports were 980,000 tonnes in April, down from 1.47 million tonnes in the same month in 2021, while shipments for the first four months are 38.7% below the level for the same period last year.
There are still no official signs that more export quotas will be granted, and Refinitiv estimates the current allowances have almost been used up.
This suggests that China will largely stay away from Asia's product markets in coming months, which may dampen crude imports from those suppliers not offering large discounts.
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