China Crude Flows to Storage Poised to Pick up After Half-Year Lull: Russell
China’s flow of crude oil into inventories is expected to increase after a period of decline, according to Russell, a prominent energy columnist. In response to higher prices in the global market, China reduced its crude oil purchases, leading to a fading inflow into its strategic and commercial stockpiles during the second half of last year.
Data shows that China’s available crude was almost in balance with refinery processing in November, with a mere 20,000 barrels per day (bpd) being added to inventories. While China does not disclose the volumes of crude flowing in or out of its stockpiles, estimates can be made by subtracting the amount of crude processed from the total available through imports and domestic output.
In November, the total volume of crude available to Chinese refiners was 14.51 million bpd, comprising imports of 10.33 million bpd and domestic production of 4.18 million bpd. Refinery throughput dropped to 14.48 million bpd, marking the lowest level since the January-February period in 2023 and a decrease from 15.05 million bpd in October.
Compared to October, when 560,000 bpd was added to storage tanks, the crude inflow into inventories saw a sharp decrease of 540,000 bpd in November. However, this slowdown in storage flows is not an isolated incident, as it continued throughout the latter half of 2023.
From July to November, approximately 240,000 bpd was added to China’s inventories. In July and September, China’s refineries processed more crude than what was available from imports and domestic output, ultimately lowering inventories. This period of weak storage flows stands in stark contrast to the robust additions witnessed in the first half of 2023 when 950,000 bpd was added to stockpiles.
The recent slowdown in crude flows is primarily attributed to lower imports triggered by higher global oil prices. The decision by OPEC+ leaders Saudi Arabia and Russia to jointly cut output by an additional 1.3 million bpd in late June resulted in a surge in prices. Brent crude futures rose from $71.57 a barrel on June 28 to a peak of $97.69 on September 28.
The lag between arranging and delivering cargoes meant that China’s crude imports slowed down from September onwards. Additionally, concerns over global economic growth and unmet demand forecasts from organizations like the International Energy Agency and the Organization of the Petroleum Exporting Countries caused oil prices to ease. Brent crude ended the previous year at $77.04 a barrel and further decreased to $75.89 on January 2.
This drop in oil prices increases the likelihood of Chinese refiners increasing their crude purchases and rebuilding inventories. Refinitiv Oil Research anticipates an increase in China’s December imports to 11.85 million bpd from November’s customs figure of 10.33 million bpd. Notably, the cargoes arriving in December were secured in October when Brent prices were falling significantly.
For Chinese refiners to ramp up their imports in the first half of 2024, oil prices would need to remain subdued. Other factors such as increased domestic fuel consumption due to a construction rebound and growing local and international travel will also play a crucial role. The export policy for refined fuels will be critical as well, with forecasts indicating that 2024 will largely mirror the situation in 2023.
Refiners took advantage of higher quotas for refined fuel exports, causing a 26.5% increase in exports during the first eleven months of 2023 compared to the same period the previous year. The first batch of 2024 quotas was announced in late December without any change in volume from the 2023 figures.
Overall, the recent period of declining crude inflows into Chinese stockpiles is expected to reverse as oil prices ease and refiners seek to rebuild inventories. Factors such as domestic fuel consumption, export policies, and oil prices will determine the extent of China’s crude flows in the coming months.
