The pace at which crude oil flowed into China's stockpiles increased in April as slower refinery processing outweighed a decline in imports.
A total of 830,000 barrels per day (bpd) was added to China's commercial or strategic stockpiles in April, up from 790,000 bpd in March, according to calculations based on official data.
Over the first four months of the year, China, the world's biggest crude importer, added 700,000 bpd to storages, a significant volume that goes some way to undermining the market view that oil consumption is robust amid a recovering economy.
China doesn't disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.
The total crude available to refiners in April was 15.13 million bpd, consisting of imports of 10.88 million bpd and domestic output of 4.25 million bpd.
The volume of crude processed by refiners was 14.3 million bpd, leaving a surplus of 830,000 bpd to be added to storage tanks.
For the first four months of 2024, the total crude available was 15.26 million bpd, while refinery throughput was 14.56 million bpd, leaving a surplus of 700,000 bpd.
Refinery processing dropped 3.3% in April from the same month in 2023, the first annual decline in 20 months, as large oil companies carried out scheduled maintenance, while smaller refiners curbed output because of weak profit margins.
It's likely that refinery throughput will recover in May as plants ramp up for the peak summer demand season, although the situation is complicated by robust demand for some refined fuels, such as jet fuel and gasoline, but softer consumption for others such as diesel.
The question for the market then becomes whether any rise in refining will lead to rising demand for crude oil imports, or whether refiners will choose to dip into the stockpiles they have been building so far this year.
Price factor
Much depends on oil prices, and recent history suggests that when global prices rise rapidly, or to levels China's refiners consider too high, the result is a pullback in imports, allowing for the lag of around two months to account for when cargoes are arranged to when they are delivered.
April's crude oil imports were the weakest since January and came two months after prices starting rallying sharply from early February onwards, after members of the OPEC+ group of exporters extended and deepened output cuts.
Global benchmark Brent crude futures LCOc1 surged from a low of $76.85 a barrel on Feb. 2 to a recent peak of $92.18 on April 12.
This suggests that price pressures may cap the demand for crude by Chinese refiners, and any gains in volumes are likely to be concentrated in discounted oil from Russia and Iran, whose exports are subject to Western sanctions, which effectively limits the number of available buyers.
The rise in official selling prices (OSPs) to a five-month high by leading exporter Saudi Arabia for cargoes loading in June may also curb China's oil demand from the kingdom, with sources pointing to a decline of 5.8 million barrels in June cargoes from May's 45 million barrels.
China's crude imports rose 2.0% in the first four months of the year, according to customs data.
However, in barrels per day terms this equates to a gain of just 100,000 bpd.
This is well short of the 710,000 bpd rise in demand that OPEC+ forecast for China for 2024 as a whole in its latest monthly report, released on May 14.
There is a difference between imports and overall demand, as demand can be satisfied from inventories or a rise in domestic crude output.
While domestic oil production is slightly higher, rising 2.1% in the first four months of 2024, it seems that China is adding to inventories at a faster pace so far this year than it did in 2023.
The excess of crude available over refinery processing in the first four months of 2024 was 830,000 bpd, compared to 480,000 bpd for the same period last year.
The overall picture that emerges is that China's oil import growth is modest so far in 2024, and more of those imports are heading into storage than they did in 2023.
(Reuters - The opinions expressed here are those of the author, a columnist for Reuters. Editing by Raju Gopalakrishnan)
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