(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
SYDNEY, March 20 (Reuters) - China still added more
crude oil to inventories in the first two months of the year,
despite lower imports and higher refinery processing rates.
About 270,000 barrels per day (bpd) of crude was added to
commercial or strategic inventories over January and February,
according to calculations based on official data.
This was down from the 1.19 million bpd in December and the
740,000 bpd for 2022 as a whole.
The slower flow into storage tanks does support the market's
bullish view for a rebound in China's oil demand in 2023 as the
world's largest crude importer stimulates and reopens its
economy after growth was crimped last year by the now abandoned
strict zero-COVID policy.
But the fact that China is still building inventories also
sounds a note of caution as it suggests that even as they ramp
up processing rates, refiners still have bulging stockpiles to
draw upon should the price of imported oil rise to levels they
deem too high.
While the current oil price has been knocked lower by the
two bank failures in the United States and the rapid takeover of
struggling Swiss lender Credit Suisse, the market expectation is
that a reinvigorated China will drive global oil demand this
year, leading to higher prices.
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 amount of crude processed from the
total of crude available from imports and domestic output.
The total volume of crude available from imports and
domestic production in the first two months of the year was
14.63 million bpd, consisting of imports of 10.4 million bpd and
local output of 4.23 million bpd.
The National Bureau of Statistics combines data for January
and February to avoid distortions from the timing of the annual
Lunar New Year holiday, which fell in late January this year.
Refinery throughput rose 3.3% year-on-year in the first two
months to 14.36 million bpd, meaning the volume of crude
available exceeded the amount processed by 270,000 bpd.
MIXED PICTURE
Looking deeper into the data for the first two months shows
that crude imports are yet to reflect any rebound in China's
demand, as they were 1.25% below the level for the same period
in 2022.
However, crude imports are a lagging indicator as it takes
up to five months from when a cargo is arranged to when it is
delivered and processed in a refinery.
This means that if China's refiners shifted to a positive
outlook for demand around the time in December when the
zero-COVID policy was ended, it would only be from April onwards
that imports would start to lift.
The gain in refinery processing is also a positive, as it
does indicate an increase in domestic fuel consumption.
But part of the increase is because refiners were
encouraged, through the granting of new quotas, to increase
exports of refined products.
Exports of refined oil products - which included diesel,
gasoline, aviation fuel and marine fuel - soared 74.2% in the
January-February period from a low base a year earlier to nearly
12.7 million tonnes, according to official data.
This equates to about 1.72 million bpd of exports, using the
BP conversion factor of 8 barrels of product per tonne.
Putting all the data together gives a somewhat mixed
picture, as crude oil imports are still soft, refinery
processing is strong, but a larger share of what was processed
was exported to take advantage of high regional fuel prices,
especially for diesel.
It's likely that China's oil demand will rise in coming
months as the economy continues its uneven recovery, but the
question is whether this rise in fuel consumption will be met by
additional crude imports, or whether refiners will dip into
inventories.
The opinions expressed here are those of the author, a columnist
for Reuters.
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GRAPHIC-China total crude available vs refinery throughput: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Editing by Stephen Coates)
Messaging: clyde.russell.thomsonreuters.com@reuters.net))
