In this list
Energy Transition | Oil | Metals | Petrochemicals

Inventories, uneven demand, high prices may cap China's H2 crude oil imports

Oil | Natural Gas (European) | Natural Gas | LNG | Renewables | Emissions | Energy Transition | Nuclear | Electric Power Risk | Electric Power | Coal | Energy | Electricity

Europe Energy Price Crisis

Energy | Oil | Refined Products | Jet Fuel

Jet Fuel

Oil | Natural Gas | LNG | Carbon | Emissions | Energy Transition | Electric Power | Coal | Energy | Electricity | Biofuels | Commodities


Energy | Oil | Shipping | Crude Oil | Tankers

Iraq oil minister says OPEC committed to production quotas through end-2023

Energy | Energy Transition | Emissions | Carbon | Oil | Crude Oil | Refined Products | Metals | Steel

Slow economic growth pressures China to rebalance carbon reduction ambitions

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

Inventories, uneven demand, high prices may cap China's H2 crude oil imports


Inventory destocking may last until September

Demand trend remains uncertain absent strong stimulus

Volatile crude threatens private refineries' quota utilization

  • Author
  • Analyst Oceana Zhou    Sambit Mohanty
  • Editor
  • Manish Parashar
  • Commodity
  • Energy Transition Oil Metals Petrochemicals
  • Topic
  • Coronavirus and Commodities

China's crude oil imports in H2 will feel the pressure from bulging domestic inventories, an uncertain demand recovery and global price gyrations, factors that could dim chances of any robust growth in feedstock inflows, analysts told S&P Global Commodity Insights July 28.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

China's oil products exports are set to fall year on year as well, which could potentially erode its appetite to ship in and crack more crudes in the second half of the year, they added.

A few analysts expected crude imports by Asia's top consumer to surpass the 10.23 million b/d level seen in January-June this year, but others said the picture may not turn out to be that rosy. They estimated that volumes could fall to about 10 million b/d, pulling down the country's total crude imports in 2022 to below the 10.3 million b/d mark seen in 2021.

Platts Analytics estimates that average crude import volumes for H2 will be at 10.4 million b/d, which meant crude imports will witness an almost nil volume growth on the year.

These projections have considered the commissioning of the greenfield Shenghong Petrochemical and PetroChina's Guangdong Petrochemical refineries.

In H1, China's crude imports fell 3.1% year on year with June imports reaching a 47-month low of 8.75 million b/d due to a plunge in domestic demand in the second quarter amid COVID-19 lockdowns. The June drop expanded crude inventories to a level not seen in close to a year.

China's crude stocks reached an 11-month high of 944.37 million barrels in May, with the level slightly easing to 916.5 million barrels as of July 27, according to shipping data from Kpler. Kpler monitors 1.51 billion barrels of crude storage capacity in China.

Destocking first priority

Almost all the analysts said Chinese refineries would clear the high-priced crude inventories prior to bringing in additional streams.

"State-owned oil firms have suffered more from high crude stocks bought at high costs as they have term contracts and the obligation of ensuring domestic supply. Independent refineries are more taking a spot-buying approach to meet prompt demand," a Beijing-based analyst said.

"The destocking activities will last until September, when the peak oil demand season finally comes. So that we expect China's crude imports are unlikely to see a notable rebound until then," a London-based analyst said.

September and October are the typical peak months for oil products consumption when the Middle Autumn Festival and the weeklong National Day holidays occur, boosting gasoline and jet fuel demand for traveling. Meanwhile, autumn also is the season for harvest, fishing and construction activities that drive gasoil demand.

Domestic demand remains uncertain

China's domestic demand recovery has been slower than expected, capping refineries' crude consumption. S&P Global data showed the country's crude throughput in July took a break from two straight monthly increases.

Gasoline and jet fuel consumption rose during the ongoing summer holidays from Q2 amid an unusually hot weather, but sporadic movement controls threaten that growth. Analysts estimated jet fuel demand had improved to about 60% of the pre COVID-19 levels.

However, gasoil's recovery has been slow as demand from the agricultural sector has weakened as the summer harvest ends in July. Demand from the construction sector is also poor due to cash flow problems, refining sources and analysts said. Tens of thousands of people are refusing to pay their mortgages for uncompleted apartments, slowing down property construction in the country.

More importantly, Premier Li Keqiang said July 19 that China will not employ large-scale stimulus measures to achieve economic growth targets this year, but will maintain specific macroeconomic policies while adjusting its coronavirus policy.

This suggests less policy push for an oil demand rebound. China is unlikely to hit its 5.5% GDP growth target for 2022 -- Platts Analytics forecast the world's second-largest economy to expand 3.3% in the year.

In addition, Beijing is keen to cut oil products outflows by issuing less export quotas to ensure domestic supplies and tackle global inflation while reducing emissions to meet the country's net-zero targets. The policy also restricts the country's crude demand.

Analysts widely expected the government would issue 5 million mt of oil products export quotas in the rest of the year. But even if it happens, the collective allocation will remain down 27% to 27.5 million mt for 2022 from the volume in 2021.

Crude import quotas

Analysts' views were further divided on the possibility for independent refineries to use up their import quotas. Typically, independent refineries aim to finish their annual quota by the year end to ensure obtaining sufficient quotas in the coming year.

Based on imports by 33 crude quota holders that S&P Global monitors, and assuming they will be fully awarded the volume in the third-round allocation, these refineries must lift their imports by up to 46% in July-December to use up all the quotas for 2022, compared with inflows in H1.

Platts Analytics said based on a robust demand recovery in H2, quota holders would also rush to bring in more crude toward Q4 to maximize their quota utilization.

"This will imply that crude imports will likely outperform domestic demand and refining runs and reverse the decline in 2021. Naturally, as refiners are ramped up on maximizing out quota utilization, imports of bitumen blend will fall onto the sidelines" Platts Analytics said in a report.

However, two Beijing-based analysts said private refiners may reconsider the strategy this year to avoid keeping high cost crude stocks by end-2022, on expectations of international crude price volatility in the winter heating season and uncertainties in Russian crude supplies.

"Lower crude import quota utilization in H1 and crude price volatility make it more difficult for the independent refiners to finish the quotas than ever," one of the Beijing-based analysts said.