During the first three quarters of 2023, China has continued expanding its crude inventories by an estimated 0.7 million barrels per day (mbpd). These increased inventories could allow China to maintain strong exports of refined products even if crude oil imports are lowered.
China does not reveal changes to its crude oil inventories, but an estimate can be made using official statistics. We have used import and export data from China’s General Administration of Customs, oil production and refinery statistics from China’s National Bureau of Statistics and ship movement data from Oceanbolt in order to estimate oil movements in and out of China.
From January to September, we estimate that China’s crude oil production reached 4.2 mbpd (up 2% y/y). In the same period, imports hit 11.3 mbpd (up 14% y/y). This allowed China’s refineries to increase their refined volumes by 11% y/y to 14.8 mbpd and expand exports of refined products to 1.2 mbpd, an increase of 28%. At 15.5 mbpd, total oil supply was 0.7 mbpd higher than refined volumes, allowing China to increase its crude oil inventories accordingly.
VLCC and Aframax ships have seen the highest increase in demand due to China’s increased crude oil imports. VLCC tonne miles into China have risen by 38% y/y while Aframax tonne miles have risen by 70% due to an increase in volumes from Russia.
For the rest of the year, Chinese crude oil imports, however, appear likely to fall. It seems that Chinese authorities will not release any additional crude oil import quotas to independent refineries. The 2023 quotas will thus end at 203.6 metric tonnes, up 10% y/y, and are expected to constrain import volumes during the 4th quarter.
At the same time, no further export quotas for refined products are expected. Exports of refined products are therefore expected to suffer and may fall to only 0.7 mbpd during the 4th quarter compared to the 1.2 mbpd during the first three quarters. MR product tanker ships carry about 50% of China’s refined product exports and must be expected to bear the brunt of the export reduction.
Should China want to, exports of refined oil products could continue at the year-to-date level without expanding the crude oil import quota. Releasing about 25% of the 0.7 mbpd so far added to crude oil inventories could allow refined product exports to remain at 1.2 mbpd, also in the fourth quarter.