China crude oil imports surge likely due to re-stocking, inventories
It's likely that strength in the past three months is due to re-stocking and the build-up of inventories ahead of commissioning of new refineries
Is China's rise to be the world's top net oil importer as bullish as it sounds, or are there still reasons to be cautious?
As is often the case with China, there are contradictory indicators that serve to muddy both the current state of its oil markets and the likely future trends.
Crude oil imports rose to a record 6.25 million barrels per day (bpd) in September, up 27 per cent from a year earlier and besting the previous record of 6.15 million bpd set in July. This helped to make China the world's largest net oil importer, ahead of the United States, a situation that is likely to persist, according to the US Energy Information Administration.
But, at the same time, China's implied oil demand fell 1.8 per cent in September from a year earlier to 9.61 million bpd, its first year-on-year decline in 17 months.
Implied demand, calculated by adding refinery throughput to net fuel imports, has been on a softening trend for much of the year, hitting a one-year low in August of 9.38 million bpd. The usual suspect for reconciling strong crude imports with softer implied demand is changes in inventory levels - which aren't officially disclosed.
It's likely that the overall strength in the past three months in crude imports is due to re-stocking and the build-up of commercial inventories ahead of the commissioning of new refinery units. It's also likely that refinery maintenance has served to lower total throughput, making implied demand look weaker than actual demand.
But there are also some other figures that call into question just how strong demand is in China.
Crude imports for the first nine months of the year have averaged 5.64 million bpd, up 310,000 bpd, or 5.8 per cent, on the same period last year.
That sounds like a reasonably strong growth rate, but it's worth bearing in mind that exports of refined products have also grown, and by a much faster rate. Product exports were about 571,000 bpd for the first nine months of the year, a gain of 20 per cent, or about 97,000 bpd.
This means that just under a third of the additional crude imports by China have been effectively exported again as fuels.
Customs data shows that petrol exports were up 77 per cent in the first nine months of 2013 over the same period a year ago, while those for light diesel have jumped 92 per cent. It's worth noting that imports of refined products have also risen, but at a slower pace than those for exports.
Imports are up 5.2 per cent to the equivalent of about 814,000 bpd and here the big gainers are naphtha at 36 per cent and petroleum coke at 46 per cent.
It's interesting that both of those products aren't used as transport fuels as with major refined products such as petrol and diesel. Naphtha is mainly used as feedstock for petrochemicals and petroleum coke for making ceramics and steel. What this shows is that China's refineries are producing more transport fuels than needed, and some of the additional crude imports are feeding this surplus production.
But refinery output has also been softer than expected so far this year. The research institute of China's top oil company, CNPC, forecast in January that the nation would process 489 million tonnes of crude in 2013, up 5.4 per cent from last year.
In the nine months to September, 355.81 tonnes of crude were processed, a rate that if maintained would result in a total of 474 million tonnes for the whole of 2013.
While it's likely that the commissioning of up to 540,000 bpd of new capacity by the end of the year will result in higher refinery throughput, it may be the case that 2013 will struggle to match 2012's processing.
It's also possible that the new capacity will result in strong crude imports for the final quarter of 2013 as refiners build up commercial inventories, which are normally equivalent to at least three weeks of daily capacity.