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China’s petroleum trade subdued at start of 2023

(Reuters) - China’s petroleum trade has disappointed bulls hoping for a rebound at the start of the year to tighten global crude inventories, which helps to explain why benchmark oil prices have fallen progressively since late January.

Crude imports amounted to 179 million tons in the first four months of 2023, broadly in line with 171 million tons in the same period in 2022 and 180 million tons in 2021.

Crude imports in the first four months have increased at a compound rate of 3.4% per year since 2018, according to the General Administration of Customs.

Imports increased by +4.6% in 2023 but after declining by -4.8% in 2022 and far slower than the growth of +7.1% in 2021.

China’s refiners are price-sensitive buyers, but they appear to have had plentiful inventories, limiting the need to increase imports despite the retreat in prices since mid-2022.

Chartbook: China's petroleum trade

The country’s refining system is primarily configured to satisfy internal demand for transport fuels and petrochemicals - with much of the business subject to price controls.

But both the major state-owned firms and privately-owned independent refineries export fuels and chemicals to dispose of any surplus and earn higher returns.

Exports of gasoline, jet and diesel are controlled through a system of quotas administered by the Ministry of Commerce.

Reduced quotas and exports between the middle of 2021 and the middle of 2022 depleted fuel inventories, especially distillates, globally.

China’s export slowdown removed around 16 million tons of refined products from the global market, with diesel accounting for essentially all of the cut.

Quotas were raised at the end of the third quarter of 2022 and more were issued for the first quarter of 2023.

Many analysts anticipated exports would rise significantly helping to rebuild depleted global inventories of gasoline and especially diesel.

But refined product exports remained modest at 22 million tons in the first four months of 2023, up from 15 million tons in 2022 but below 25 million tons in 2021.

Diesel exports were less than 7 million tons, up from under 2 million tons in 2022, but well below 9 million tons in 2021.

The subdued rebound in diesel exports has kept global inventories tighter and crack spreads stronger than seemed likely at the start of the year, despite the downturn in the business cycle across North America and Europe.

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