China smashed its crude oil imports record in May as manufacturing activity picked up and lockdowns eased. Amid recovering demand for gasoline and diesel, China’s total demand is nearly back up to pre-coronavirus levels, which prompted refineries to ramp up crude processing rates.
On the face of it, China’s record crude oil imports last month are attributable to returning business activity and commuting, while road freight transportation gets a boost from deliveries of surging online sales.
Yet, several other factors contributed to China’s record imports of crude oil in May.
The lowest oil price in years was the key driver of the boom in China’s crude imports in May—a month in which both its exports and imports suffered due to weak global demand amid lockdowns.
China imported 47.97 million tons of crude oil in May, equal to a record-high 11.34 million bpd, preliminary data from the Chinese General Administration of Customs showed on Sunday.
According to data from IHS Markit, most of the record-high imports are indeed attributable to recovering oil demand in China, which was expected at 92 percent of ‘normal’ demand in May.
According to Wood Mackenzie, China’s oil demand is set to recover to 13 million bpd in the second quarter of 2020, up by 16.3 percent from Q1.
“China’s demand for gasoline and diesel are expected to increase YoY from Q3 2020 onwards,” the consultancy said at the end of May, adding that eased lockdowns and a preference for commuting in personal vehicles will push gasoline demand to a quick recovery. Gasoline demand will likely return to last year’s levels by June 2020. Related: OPEC+ Agrees On Extending Record Output Cuts
But the lowest oil prices in four years also triggered opportunistic buying from Chinese refiners.
According to China’s preliminary customs data from Sunday, crude oil imports rose by 5.2 percent year-over-year between January and May – even though most of the time, China was under lockdown during this period. The value of the crude imports in U.S. dollars was down by 19.6 percent in the first five months of 2020, as per customs data, suggesting that low oil prices played an important part in China’s steady crude imports so far this year and the record-high imports in May.
The 15-percent jump in imports in May compared to April “does not mean that Chinese consumption has fully recovered from Covid-19. Instead, this is most likely just opportunistic buying, given the low price environment the market has been in for the last few months,” ING strategists Warren Patterson and Wenyu Yao said on Monday.
In recent weeks, China has been taking advantage of the cheapest crude oil in years to stock up as demand returns in the world’s largest oil importer. As of the middle of May, a huge fleet of 117 very large crude carriers (VLCCs) – each capable of shipping 2 million barrels of oil – was traveling to China for unloading at its ports between the middle of May and the middle of August, according to tanker-tracking data compiled by Bloomberg.
China’s independent refiners--the so-called teapots—continued to actively procure oil in May, most likely because of the low prices, oil analytics firm OilX said last week, estimating that crude oil imports jumped by 13 percent from April to near record-highs of 11.11 million bpd in May.
There has been a steady recovery in Chinese refinery crude processing rates in recent weeks to warrant higher imports. Still, at least some of the increased crude intake can be attributed to the Shanghai INE crude futures trading at a premium over other deliverable grades, OilX said.
Since April, Chinese hedge funds have been betting big on an oil price recovery on the Shanghai crude futures, which has led to major Chinese state oil firms, including PetroChina and Sinopec, delivering oil into the crude oil futures contract.
Related: OPEC+ Deal Fails To Give Prices Major Boost
Yet another reason for China’s record oil imports could be the country anticipating further tensions in the U.S.-China trade relations, TS Lombard analyst Bo Zhuang told the Financial Times on Sunday.
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“China wants to fill up its oil tanks and soybean warehouses in case it couldn’t import these materials freely,” Zhuang told FT.
China’s crude oil imports could slow down in the second half of the year, considering the rising oil prices and the uncertain global economic recovery, which could further stall demand for Chinese goods overseas.
In addition, the upcoming refinery maintenance season and independents using up their import quotas could mean Beijing’s crude oil imports may not be as strong in the second half as in May, Michal Meidan, head of China research at the Oxford Institute for Energy Studies, told Bloomberg.
By Tsvetana Paraskova for Oilprice.com
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China wouldn’t be smashing records in its crude oil imports if not for mushrooming demand for crude even if it was offered at $5 a barrel.
It is remarkable that China’s crude oil imports rose by 5.2% year-over-year between January and May when China was still under lockdown according to China’s preliminary customs data. This equivalent to average crude oil demand growth in 2019. This is the more impressive given that many analysts and investment banks estimated that China’s crude oil demand lost 40% during the pandemic.
China is now virtually underpinning global oil demand. Another underpinning factor is that Chinese hedge funds have been betting big on an oil price recovery on the Shanghai crude futures leading to major Chinese State oil companies, including PetroChina and Sinopec, delivering oil into the crude oil futures contract.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London