Chinese oil demand is on the mend, with several refiners planning to ramp up processing rates considerably, according to a Reuters report citing unnamed sources in the know.
Per these sources, at least three state-owned refiners and one private refining major have plans to increase processing rates by 10 percent next month from this, expecting higher demand for fuels, especially from abroad.
Europe is an obvious source of this higher demand after an embargo on Russian crude oil kicks into effect in December and an embargo on fuel imports follows in February. Currently, European buyers are still importing from Russia to stock up ahead of the embargo but once that takes effect they will need to look for alternatives and China is one of them.
In anticipation of this higher demand, refiners in China expect the government to issue another fuel export quota batch for up to 15 million tons, the Reuters sources also said.
"We're raising runs next month in preparation for a possible opening in exports, though nobody has a clear idea how big the opening would be," one official from a state-owned refiner told the news agency.
"I believe that China-bound freight rates strengthen on the hope of a China demand recovery... the rumour of an extra large amount of product exports in Q4 also fuelled market optimism," an analyst from Vortexa Analytics told Reuters.
Meanwhile, China is also ramping up oil imports, with the daily average for August at 9.5 million bpd, which was a marked improvement on July, although still lower than the average oil import rate for August 2021.
As demand for oil from China grows, so will freight rates as the country steps up its oil-buying from around the world. According to Refinitiv data cited by Reuters, the rate for a Very Large Crude Carrier trip between the Gulf of Mexico or the Middle East to China has risen to $10 million.
By Irina Slav for Oilprice.com
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