After some good news for oil exporters from China, there is now even better news about oil demand from the world’s top importer: Chinese refineries processed a record-high amount of crude oil last month, according to a Reuters report, as demand for fuels improved, driving margins higher.
The average daily in June stood at as much as 14.08 million barrels, according to official data from the National Bureau of Statistics. This compares with 13.1 million bpd in May, and an average of 12.28 million bpd for the first four months of 2020.
To compare, in February, at the height of the outbreak in China, refinery run rates fell to the lowest in six years, at some 10 million bpd. At the same time, refiners took advantage of the oil price rout to stock up on cheap oil while the rout lasted. With the June numbers, China’s first-half refining rates rose to an average of 12.8 million bpd.
Things seem to be improving with China’s fuel demand but the data is not all positive. Just a few days ago, Bloomberg reported, citing traders and analysts, that Chinese refiners were still struggling with depressed margins and were likely to reduce their run rates in the third quarter of the year.
The main question is how quickly demand for fuels will return to pre-Covid-19 levels, if at all. Because in addition to depressed margins for refiners, there is also limited storage space for all the cheap oil Chinese traders and refiners gobbled up during the worst of the oil price crisis.
While China keeps the level of its oil inventories confidential, satellite data and tanker tracking data hints at this level rising, although some, such as Matt Smith from Clipper Data, note that China has enough space onshore to take in a lot more oil.
Yet demand for oil has rebounded impressively fast. As of the beginning of June, it had recovered to 90 percent of pre-pandemic levels, which sparked hopes for the rest of the world as well.
By Irina Slav for Oilprice.com
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The fact that China processed a record-high average daily of 14.08 million barrels in June means two things: a rising demand domestically and also rising exports. And with refiners stocking up on cheap crude oil, their margins must have improved no end.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London