Estimated high stock levels in China allow its refiners to draw crude from inventories and slow purchases when oil prices rise, thus undermining the ongoing efforts of the OPEC+ group and its leader Saudi Arabia to tighten the market and prop up prices, analysts told Reuters.
Last month, China likely drew crude from inventories amassed over the past two years as its crude oil imports slumped compared to near record highs in June and refinery throughput exceeded available crude from imports and domestic production, estimates by Reuters columnist Clyde Russell showed this week.
“China built up the stocks to run them down when it wanted to avoid the overheated market of July-August,” Kpler analyst Viktor Katona told Reuters.
China’s crude imports registered a massive decline in July compared to June, as its top refiners were sensitive to recent price hikes on the back of record stockpiles, Emma Li, China Market Analyst at Vortexa, wrote in an analysis last week.
Chinese crude oil imports slumped last month compared to June, although they were higher than in July 2022. China’s crude oil imports averaged 10.29 million barrels per day (bpd) in July, compared to a near-record 12.67 million bpd in June. The July imports were 17% higher compared to the same month last year, when China was still under strict Covid-related lockdowns.
“China’s seaborne crude imports slumped below 10mbd in July, down 13% m-o-m from June’s 3-year highs. But imports have been higher compared to the same period in the past two years, as fuel demand has recovered from pandemic restrictions,” Vortexa’s Li commented.
At the same time, China’s onshore crude stocks climbed at an average rate of over 1.1 million bpd for three straight months since late April and registered a new record at 1.02 billion barrels at end-July, amid rising crude imports, seasonally low refinery throughputs during spring maintenance, and the weaker-than-expected recovery in domestic demand, particularly from the manufacturing sector, Vortexa says.
“The somewhat unplanned stock build allows Chinese refiners to slow down crude purchases in the weeks ahead as prices go up,” Li noted.
By Tsvetana Paraskova for Oilprice.com
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