China makes rare draw on crude oil inventories as imports slip
(Reuters) - China made a rare draw on crude oil inventories in July as imports softened and refinery processing remained elevated to meet rising domestic demand and a surge in refined fuel exports.
Refiners used about 510,000 barrels per day (bpd) from stockpiles in July, the first time in 33 months that they had dipped into storages.
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.
China's refiners processed 63.13 million metric tons in July, equivalent to 14.87 million bpd, according to data released on Aug. 15 by the National Bureau of Statistics.
This was up 17.4% from the same month in 2022, and was the joint second-highest monthly total on a barrels per day basis, eclipsed only by the 14.9 million bpd in March and matched by the 14.87 million bpd in April.
The volume of crude available to refiners was 14.36 million bpd, consisting of imports of 10.29 million bpd and domestic output of 4.07 million bpd.
Subtracting the refinery throughput from the total crude available leaves a deficit of 510,000 bpd.
This was the first time since November 2021 that refinery processing exceeded total available crude, with the gap in that month coming in at 375,000 bpd.
The main drivers for the swing to drawing on crude inventories in July was the drop in imports, coupled with the strong refinery throughput.
Imports dropped 2.38 million bpd in July from June's 12.67 million bpd, and were the lowest monthly total since January.
The likely catalyst for the drop in imports was higher crude prices that prevailed at the time most July-arriving cargoes would have been arranged.
Crude price influence
Global benchmark Brent futures rallied from a closing low of $72.97 a barrel on March 17 to a peak of $87.33 on April 12.
This meant that Chinese refiners were facing higher costs for oil for July delivery, especially since major Middle East suppliers such as Saudi Arabia were also boosting the official price premiums for their oil relative to benchmarks.
A subsequent decline in Brent prices over the rest of April, which extended into late June, may see Chinese refiners boost imports for August and September, with Refinitiv Oil Research forecasting arrivals of 11.91 million bpd this month.
However, Brent's rally in recent weeks may lead China's refiners to moderate imports in the fourth quarter of this year.
Brent rose by 21.2% from its close of $72.26 a barrel on June 27 to a recent peak of $87.55 on Aug. 9 as top exporter Saudi Arabia extended a voluntary 1 million bpd output cut and the market became more confident that the developed world would avoid a recession.
The price has since dipped to end at $83.45 a barrel on Wednesday amid concern about the health of China's economy, the world's second-largest, which has reported a run of soft outcomes in the key manufacturing, construction and retail sectors.
The other factor driving the draw on crude inventories was strength in exports of refined fuels, which rose to 5.31 million metric tons in July, up 17.7% from June and 55.8% from July last year.
Chinese refiners are taking advantage of rising margins for fuel, with the key Singapore crack for gasoil, the building block for diesel, jumping from a low of $14.78 a barrel on July 4 to a recent high of $30.90 on Aug. 10.
If profit margins for refined fuels remain strong and Chinese refiners have available export quotas, it's likely they will seek to continue to export in coming months, which will help keep processing rates elevated.
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