Weaker China oil imports amid growth in demand confounds analysts
Mainland oil imports have weakened even as demand has grown, but domestic crude output figures are not providing an answer
How do you reconcile the apparently contradictory facts that mainland oil demand and refinery runs hit four-month highs in June while imports of crude fell to the lowest in nine months?
The picture becomes even more obscure if you look at the first-half numbers for the three main indicators available to gauge mainland oil demand.
Take crude imports first. They were 5.39 million barrels per day (bpd) in June, down 4.4 per cent from May and the weakest since September. Over January to June crude imports were 5.57 million bpd, a decline of 1.4 per cent from the same period last year.
Turning to refinery runs, they were 9.64 million bpd in June, a gain of 10.8 per cent from the same month in 2012. In the first half they were 9.55 million bpd, up 4.1 per cent on the same period last year. Finally, implied oil demand, calculated by adding refinery throughput to net imports of refined products, rose to 9.94 million bpd in June, up 5 per cent from May and 10 per cent from the same month in 2012.
First-half oil demand was 9.82 million bpd, up 3.4 per cent on the same period in 2012. What we have in essence is declining crude imports being contrasted with modest growth in oil demand and processing. The mainland's domestic crude output doesn't provide an answer, having risen a modest 2.7 per cent in the first five months of the year to about 4.17 million bpd, which translates to roughly an extra 62,000 bpd over January to May.
That leaves commercial and strategic inventories as the most likely explanation, but this is always a grey area because Beijing does not report actual levels for stocks. What is known is that commercial crude inventories have been rising since March, as Xinhua does report percentage changes.
In May, stocks were up 4.75 per cent from April, when they gained 0.14 per cent and 2.2 per cent in March. Part of the explanation then for June's soft crude imports but robust rise in refinery processing can be put down to using up crude inventories as plants returned from maintenance in April and May.
But overall it appears that the mainland may have actually added to crude inventories in the first six months of 2013. Assuming domestic oil output was steady in June at the 4.17 million bpd achieved over the first five months, and adding in the crude imports gives a total of about 9.74 million bpd of available oil over the first half of the year.
With refinery throughput at 9.55 million bpd, this implies that as much as 190,000 bpd was added to inventories over the January-to-June period.
This in turn suggests that the mainland will be in no hurry to boost crude imports in coming months, given it already appears to have ample stockpiles.
It's more likely that crude imports will be tied to actual domestic consumption, and this throws up some interesting possibilities for the second half. With the mainland economy losing some momentum, particularly on the industrial production side, this is likely to weigh on demand for diesel, the main transport fuel, and naphtha.
Mainland gross domestic product expanded 7.5 per cent in the second quarter, the ninth quarter in the last 10 that expansion has weakened. Industrial output growth slowed to 8.9 per cent in June from May's 9.2 per cent, a sign that the economy was slowing more toward the end of the second quarter.
On the other hand, vehicle sales rose 11.2 per cent in June and are up 12.3 per cent so far this year, which should boost petrol demand. Assuming the trend toward slower industrial activity continues for some months and vehicle sales remain robust, this will leave mainland refiners with some choices.
Will they keep refinery runs high in order to meet the expected increase in gasoline demand, and try and export surplus diesel? Or will they keep runs steady and meet any increase in petrol consumption by curbing exports?
Export figures indicate they could do either. In the first five months of the year, the mainland exported about 115,000 bpd of petrol, an increase of 59 per cent over the same period in 2012, while diesel exports were about 80,800 bpd, a 241 per cent leap.
It will likely come down to the prevailing margins in Asia for products, but even if processing profits are strong enough to encourage the mainland to export fuels, this alone is unlikely to be enough to spark a rebound in crude imports.
Crude imports should grow in the second half, but it may be by a smaller margin than expected, assuming mainland oil output and net fuel imports are much the same as in the first half.