China’s record crude imports in October were matched by healthy processing rates at refineries, but even so the country still seemed to be stockpiling oil at a blistering pace.
China imported 10.72 million barrels per day (bpd) last month, up 11.5% from the same month in 2018 and eclipsing the previous high of 10.64 million bpd from April.
The world’s largest crude importer brought in 9.95 million bpd in the first 10 months of the year, up 10.5% from the same period in 2018.
But the strong growth in crude imports has largely been matched by record refinery runs, with 13.62 million bpd being processed in October, just below September’s record 13.75 million bpd.
For the first 10 months of the year, Chinese refiners processed 12.90 million bpd, up 6.4% from the same period in 2018.
China doesn’t provide regular data on the flow of crude into strategic and commercial storage, but an estimation can be made by looking at the total amount of crude available from imports and domestic output, and then subtracting the amount processed by refiners.
Domestic crude production in October was the equivalent of 3.79 million bpd, which together with imports gives a total of 14.51 million bpd of available oil.
Taking away the refinery throughput of 13.62 million bpd leaves about 890,000 bpd of crude that most likely flowed into commercial and strategic storage.
For the first 10 months of the year, total available crude was 13.78 million bpd, and refinery runs were 12.90 million bpd, leaving a gap of 880,000 bpd available for stockpiling.
Coincidentally, China’s increase in crude imports for the first 10 months of the year from the same period in 2018 is about 898,000 bpd.
The flow into storage only becomes important when China starts to pare back its crude purchases for the strategic petroleum reserve as it closes in on reaching the International Energy Agency (IEA)recommended level of 90 days of import cover.
This could be sooner than the market may currently anticipate, given the National Energy Administration said in September it has about 80 days of oil in storage, both commercial and strategic.
On that basis, a target of 90 days storage could be reached in the first quarter of 2020, although Beijing has yet to definitively say at what level it would stop adding to reserves.
Given that China is currently accounting for almost 90% of the IEA’s forecast total expected growth in global crude demand in 2019 of 1 million bpd, a scaling back of imports for storage may have serious consequences for the strength of world demand.
Another factor worth noting is that the rise in refinery runs has led to higher exports of refined products, albeit at a somewhat slower pace than the gain in processing.
Exports of refined fuels in the first 10 months of the year were 52.75 million tonnes, up 9.3% from the same period in 2018.
A breakdown by product isn’t yet available for October, but data for September showed that in the first three quarters of the year exports of gasoline were up 7.2%, diesel by 14.5% and jet kerosene by 20.2%.
It’s possible the strong crude imports and refinery runs in October will show up in higher exports of refined fuels this month and in December as Chinese refiners seek to use up export quotas amid soft domestic fuel demand growth.
Certainly refining margins in Asia are coming under pressure, with a typical Singapore refinery currently making just 47 U.S. cents per barrel of profit, compared to the moving 365-day average of $4.18 a barrel.