China starts to store crude oil again as 2023 refinery processing slows down. 

As refinery processing declined from a record high and imports marginally increased from September, CHINA started to add to its crude oil inventories in October.

October saw the addition of roughly 560,000 barrels per day (bpd) to stockpiles, according to calculations made with official data on imports, domestic production, and refinery throughput.

Refiners processed 240,000 bpd more than was available from imports and domestic output in September, but this was a reversal from that time.

The biggest crude importer in the world’s refiners have used up their stockpiles in three of the current 2023 months: April, July, and September.

With roughly 680,000 bpd being stored in the first ten months of the year, additions to stockpiles large enough to more than offset the draws have been made during the final seven months until October.

The amount of crude that enters and exits China’s commercial and strategic stockpiles is not publicly available, but one can estimate it by subtracting the amount of processed crude from the total amount of crude that is available from imports and domestic production.

Refiners in China processed 63.93 million tonnes of crude in October, or 15.05 million barrels per day, as per data released on November 15 by the National Bureau of Statistics.

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Converting uncertainty into adaptability

The record September throughput of 15.48 million bpd was surpassed by lower throughput, mainly due to lower domestic margins resulting from slower demand growth and lower exports as refiners reached their quota limits.

48.97 million tonnes of crude were imported, while 17.33 million tonnes were produced domestically, for a total of 66.3 million tonnes, or 15.61 million barrels per day.

560,000 barrels per day remain after deducting the refinery throughput from the total amount of crude that is available, which can be placed in commercial or strategic reserves.

This year, China has imported more crude oil when prices were low and increased refinery processing when export quotas were available. This strategy has allowed China to take advantage of high margins for fuels in Asia, particularly diesel.

On the other hand, when crude prices have increased, as they did starting in July following Saudi Arabia’s reduction of an extra million barrels per day of output, leading exporter and de facto leader of the Organisation of the Petroleum Exporting Countries and its allies, or Opec+,

In the months that follow, China has a tendency to reduce imports.

This implies that Chinese refiners are content to use their large reserves of crude oil to offset their high costs.

Are the projections overly optimistic?

The International Energy Agency (IEA), which projects that China’s demand will increase by 1.8 million bpd in 2023, has some optimistic forecasts regarding Chinese demand, but the flows into storage so far in 2023 cast doubt on some of these predictions.

China’s imports are 11.36 million bpd for the first ten months of this year, 1.19 million bpd more than for the entire year 2022.

It is important to consider both the flows into storage tanks and the rise in refined fuel exports in order to obtain a more accurate picture of China’s domestic fuel consumption.

In the first ten months of this year, refined product exports increased by 33.2% to 53.09 million tonnes, or 1.40 million barrels per day if one uses BP Plc’s conversion rate of eight barrels of product for every metric tonne of crude.

The total amount of refined fuel exported in 2022 was 1.18 million bpd, meaning that during the first ten months of 2023, there was a 220,000 bpd increase over 2022.

When the rise in product exports is added to the storage flows, the combined total for the first ten months of the year is 900,000 bpd.

The real domestic consumption is only 290,000 bpd higher than in 2022 when this is deducted from the 1.19 million bpd increase in crude imports.

This is by no means a bullish figure, and it may indicate that part of the IEA’s optimism—which Opec+ shares in large part—about the state of China’s demand is exaggerated.

Demand growth is influenced by inventory flows and the reexporting of refined products made from crude oil, but depending on them to achieve optimistic China forecasts is probably misguided. — News reports

Columnist Clyde Russell writes for Reuters. The author’s opinions are those that are expressed here.

In the first ten months of this year, China’s imports have reached 11.36 million barrels per day, 1.19 million more than the total for 2022. It is important to consider the flows into storage tanks and the rise in refined fuel exports in order to obtain a more accurate picture of China’s domestic consumption.

China has been exporting more refined products; in the first ten months of this year, exports of refined products increased by 33.2% to 53.09 million metric tonnes. Using the BP Plc conversion rate, this comes out to about 1.40 million barrels per day.

By contrast, 1.18 million barrels per day of refined fuel were exported in 2022. This suggests that in the first ten months of 2023, exports rose by 220,000 bbl/d. 

During the first ten months of the year, the total amount of product exports and storage tank flows comes to 900,000 barrels per day.

After deducting this from the rise in crude imports, actual domestic consumption is up just 290,000 barrels per day over 2022.