China's Jan-Feb crude throughput may remain at high levels despite slow demand

Singapore — China's crude throughput will likely remain at relatively high levels over January-February despite the slowdown in domestic fuel consumption for the Lunar New Year due to the resurgence in COVID-19 spread, as refiners aim to clear their hefty feedstock stockpiles and make full use of the country's sufficient refined product storage space.

"Sufficient oil product storage space and hefty crude imports in January/February allow and force Chinese refineries to boost throughput prior to maintenance season in March-May," a Beijing-based analyst said.

S&P Global Platts' data showed that average run rate at 39 refineries under the four big state-owned oil barrels -- Sinopec, PetroChina, CNOOC and Sinochem -- is at 80.3% in January, up from 78.2% in December.

The privately-held integrated complex Hengli Petrochemical (Dalian) and Zhejiang Petroleum & Chemical kept their utilization unchanged from December at 107% and 70%, respectively.

Meanwhile, 45 small-sized private sector refineries in Shandong province slightly lifted their operation rate to 73.8% so far till Jan. 21, compared with an average of 73% in December, according to local information provider JLC.

These suggest that China's crude oil throughput is likely to rise from the December level, which was 14.19 million b/d, data from the National Bureau of Statistics showed.

Platts historical data over January 2012-January 2021 also showed that January run rates were usually one to two percentage points higher than December due to less maintenance and better oil product stocking demand from trading houses for Spring Festival travel rush.

No oil product inventory pressure

Sinopec's refiners in eastern and southern China said they have cleared most of their oil product stocks in December when sales were good, so that they don't have an inventory pressure.

NBS data showed that the country's throughput in December retreated 0.5% to 14.19 million b/d from the record high of 14.26 million b/d in November. The bureau will release throughput data for January-February in March.

This allows the Sinopec refineries which resumed from maintenance to compensate the throughput reduction in those affected by COVID-19 resurgence in north China, and push the group's average utilization to hit 85% in January, rising about three percentage points from December.

Moreover, the coming 2021 maintenance season will also encourage refineries to grow oil product stocks, which will be kicked off on Feb. 20 by Sinopec's Jiujiang Petrochemical and followed by CNOOC's Huizhou Petrochemical on March 4. More importantly, "state-owned refineries have rooms to export oil products to offset inventory pressure too," the Beijing-based analyst quoted above said.

Digest hefty crude arrivals

In the independent refining sector, the small-scale refineries have to maintain throughput to offset crude inventory pressure amid hefty arrivals in January despite the fact that slow demand and high crude prices have narrowed their refining margin, refinery sources said.

These refineries are set to bring in more crude barrels in January when they gain new crude import quotas for year 2021, following their inflows falling to an eight-month low in December.

Data from intelligence firm Kpler showed that crude arrivals in Shandong province, home of small-scale independent refineries, amounted at 4.42 million b/d in January, rebounding sharply by 53.6% from December.

As a result, crude inventory in the province is expected to rise to 219.29 million barrels in January from the four-month low of 212.70 million barrels in December.

Transportation fuel demand

Despite governments taking measures to avoid COVID-19 spread by cooling down Spring Festival Travel rush, the negative impact on transportation fuel demand -- mainly gasoline and jet fuel -- is limited compared to the same period during 2020.

"It is very unlikely to repeat the demand damages in last year. There is not much room for downward adjustment of the demand forecast for January and February this year," a London-based analyst said.

S&P Global Platts Analytics projected China's gasoline demand at about 3.4 million b/d in January-February, up 20% year on year but 5.5% below the level in the same period of 2019.

Jet fuel demand projection, however, remained 20% below the level in 2019 at about 745,000 b/d in the first two months of 2021, slightly down even from the 760,000 b/d in the same months in 2020.

Number of the country's new COVID-19 cases fell to below 100 since Jan. 25, followed by 13 days in January that registered over 100 new cases.

To prevent the spread, several cities and towns in the northern part of China have been locked down in January. Even in the low-risk regions in the south, the government has called for citizens to stay locally during the coming Lunar New Year holidays, when transportation fuel demand generally picks up.