ANALYSIS: China's crude import growth may cool after robust inflows in May

China's crude oil imports sustained their upward momentum and posted close to 12% year-on-year growth in May, but a cocktail of plentiful inventories at home and sky-high global oil prices may pull down the import growth rate to relatively modest levels over the next few months, analysts said on June 10.

As domestic barrels overflow following rising imports in recent months, importers may be cautious in sealing too many deals despite an modest rise in interest to export product cargoes following the recent announcement of export quotas.

China's crude oil imports in May hit a four-month high of 10.84 million b/d, representing a robust year-on-year growth of 11.9% and a 3.1% increase from April levels, data from General Administration of Customs showed on June 9.

"We estimate monthly crude imports in June, July and August to remain more or less around May levels, as refineries would prefer to consume their inventory at a time when oil prices are high," a Beijing-based analyst said.

While an increase in inflows of attractively-priced Russian crudes is expected over coming months, it is more likely to displace imports from other regular suppliers, resulting in relatively stable overall inflows in coming months, analysts added.

The recovery in crude inflows started in March, rising 6.2% from a four-month low of 9.51 million b/d in February, GAC data showed.

The rise in inflows in May was more likely due to term supply arrivals for state-run refineries. Independent refineries lifted their crude imports by only 0.6% month on month to 2.44 million b/d in May, according to S&P Global Commodity Insights' data.

Chinese refineries cut throughput to a two-year low of 12.66 million b/d in April, according to data from National Bureau of Statistics, as tight pandemic-related movement controls and lockdowns took a sharp toll on products demand.

S&P Global data showed that tank-topped oil product inventories led to further throughput reduction in May as the state-owned refineries, which were the main contributors of crude import growth in May, had cut their average run rate to 73.4% from 76.4% in April.

Bulging feedstock inventories

The four-month high imports coupled with a two-year low throughput led to high crude stocks. According to data intelligence provider Kpler, China' crude stocks were estimated to stand at an 11-month high of 939.07 million barrels in May, accounting for 63% of the country's crude storage capacity that Kpler monitors.

Platts Analytics of S&P Global said in a report that an unintentional buildup of crude inventories will likely dampen refiners' appetite for crude purchases in the coming months despite increasing inflows from Russia.

Independent refineries lifted Russian crude imports by 8.1% month on month in May, wiping out Brazil completely from the suppliers' list, S&P Global data showed. It was the first calendar month since January 2016 when Brazilian crude imports dropped to zero, falling from a record high of 899,000 b/d in July 2020.

"Russian crudes can replace some expensive grades from America and Africa but are unlikely to push up China's total crude imports," the Beijing-based analyst said.

Limited throughput recovery

Moreover, China's throughput recovery is more likely to be limited as the ongoing dynamic zero-COVID control policy is expected to cap domestic demand growth, while oil product exports are set to see a year-on-year reduction in 2022 despite 4.5 million mt of supplementary oil product export quotas released earlier this week, analysts said.

This will cap the country's crude consumption.

Analysts expect China's oil demand in June to grow around 4% from May after Shanghai eased COVID-19 restrictions following a two-month lockdown.

Gasoline, gasoil and jet fuel exports are more likely to rise to just over 3 million mt in June, given a short time frame for arranging shipment logistics, analysts said.

Prior to the allocation, market talk was that China's exports in June would amount to just over 2 million mt, comprising 1.36 million mt of gasoline, 160,000 mt of gasoil and 650,000 mt of jet fuel.

In May, China's fuel oil, gasoline, gasoil and jet fuel exports fell 14.4% to a five-month low at about 3.27 million mt from April, GAC data showed.

On a year-on-year basis, outflows slumped 39.5% in May and pulled down the cumulative volume by 38.5% to 18.45 million mt in the first five months.