Crude oil imports to China could fall by some 3 percent as a result of a government effort to reduce the output of fuels amid excess stocks, Reuters reports. As part of this effort, Beijing has asked PetroChina, the state-owned oil major, to stop trading off crude import quotas with independent refiners.
The push to reduce fuel production comes as refining margins slip closer to zero—not just in China but in the rest of Asia, too. Margins fell from $1.65 per barrel in April to just $0.03 per barrel in the middle of May.
Since then, the report notes, however, margins have begun improving and are expected to continue strengthening, especially in the second half of the year when vaccinations are expected to improve the fuel demand outlook. At the end of May, Singapore complex margins had jumped to $0.60, higher than the trough in mid-may but still far from the April average.
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At the same time, Beijing has tightened control over crude oil import quotas, with last month sending an "urgent notice" to state oil majors, asking Sinopec, China National Offshore Oil Corporation (CNOOC), Sinochem Group, ChemChina, and China North Industries Group to provide to the National Development and Reform Commission (NDRC) historical information about how they have been using the crude oil they have been importing, and whether they have resold crude to other companies in the country.
According to the Reuters report, which cited unnamed sources in the know, without the crude teapot refineries buy from state-owned companies, their annual purchases of oil would fall by some 12-16 million tons, which is equal to about 240,000 to 320,000 bpd.
"The government is taking a lot more seriously carbon emissions this year, and sees large crude oil imports and large refined fuel exports as something unsustainable," one of the sources said.
By Irina Slav for Oilprice.com
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Moreover, Brent crude won't be surging to almost $72 a barrel without China’s rising crude oil imports.
If China’s crude oil imports in 2020 exceeded the 2019 level by 10% despite the pandemic, is it possible they will decline when its economy is roaring?
China is importing large volumes of crude from both Iran and Venezuela at discounted prices without declaring the actual numbers so as not to invite more US sanctions on them. Therefore, it might reduce what it is importing from Saudi Arabia, Iraq and UAE at higher oil prices for instance in favour of discounted crude from Iran and Venezuela but total imports haven’t dropped.
There are reports that China has been importing 1 million barrels a day (mbd) from Iran and a slightly less volume from Venezuela.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London