Singapore — China's crude oil imports surged to a record high in May, signalling demand recovery in the world's second-largest economy and paving the way for OPEC+ producers to reconsider production cuts in Q3, market sources told S&P Global Platts June 8.
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Crude oil imports jumped 19.2% on the year to an all-time high of 11.34 million b/d, or 47.97 million mt in May, as Chinese buyers late March had rushed to purchase cheap crude cargoes for May delivery, preliminary General Administration of Customs data released June 7 showed.
The latest China data may prompt OPEC+ producers to reconsider the group's agreement to slash output later in the third quarter.
Both state-run and independent refiners have ramped up crude purchases in the previous trading cycles to take full advantage of the ultra-low crude prices over March-May.
Refinery run rates have also moved higher in the last few months as economic activities resumed following successful containment measures to limit the coronavirus outbreak, industry and market participants said.
The May inflow was 1.5% higher than the previous record of 11.18 million b/d seen in November 2019.
On a barrel per day basis, May arrivals were also 14.8% higher than April imports of 9.88 million b/d, recovering from an 8-month low of 9.72 million b/d in March amid the coronavirus pandemic.
Crude imports over January-May totaled 10.4 million b/d, rising 4.5% on the year, the data showed. GAC releases data in metric tons, which Platts converts to barrels using a 7.33 conversion factor.
The sharp increase in China's overall crude purchases were in line with Platts survey data released last week.
The survey data showed the country's independent refining sector ratcheted up crude imports in May by 71.1% on the year to a record high of 4.42 million b/d, sending a bullish signal to the global oil market that the recovery in Chinese energy demand is on track.
OPEC and its allies agreed on June 6 to extend the coalition's 9.6 million b/d output cut agreement through July.
However, major Middle Eastern crude producers and Russia would draw support from the latest Chinese import data, as rapid energy demand recovery in the country would provide incentives for the major crude suppliers to start rolling back on the production cut agreement, industry and refinery officials said.
The cuts -- originally 9.7 million b/d including Mexico -- had been scheduled to taper to 7.7 million b/d in July through the rest of the year.
"Obviously current oil prices are still too low to prompt OPEC+ members to immediately unwind the production cut stance, but the group will likely focus boosting their export earnings from Asia sooner or rather than later. China's upbeat demand should give them some encouragement to reduce the rate of production cuts when the timing is right," said a crude trading manager at Beijing-based Chinaoil, a trading arm of state-run PetroChina.
Rising international benchmark outright prices, combined with the sharp hike in Saudi Aramco's official selling prices for July-loading cargoes could, however, put the brakes on China's demand in Q3, industry officials and market sources said.
On June 7, Saudi Aramco set the OSP differential for its Arab Light crude headed to Asia at plus 20 cents/b against the average of the Dubai and Oman benchmarks over July. That is up by $6.10/b from the June price, far above the $2-$5/b increase that traders had expected, according to a Platts survey.
"Oil price has been rising and now is over $40/b already and differentials for crude grades against the benchmarks also jumped, which narrows refiners, especially independent refiners' profit margins. With ample cheap crude inventory in hand, we will take a breather for August delivery," a source with a Shandong-based independent refinery said.
Moreover, "Demand recovery is more likely driven by the domestic supply side as factories, plants lifted their utilization rates. But [the actual end-product] consumption side lagged a bit. Combined with slowing exports, tank-tops inventory will be the result later. All these will dampen [refinery feedstock procurement] interest for Q3 deliveries," a Beijing-based analyst said.
Trade flow and inventory tracker Kpler showed that China's crude stock kept rising since the week beginning May 11 to a fresh record high of 831 million barrels in the week beginning June 1, 6.8% higher than the peak of 778 million barrel registered in the week June 10, 2019 over January 2017 - December 2019.
OIL PRODUCT EXPORTS
For oil products, China's exports dropped to a 15-month low of 3.89 million mt in May, falling by more than a half from the fresh record high of 8 million mt in April, GAC data showed. The previous low was 3.81 million mt in February 2019.
Sinopec, China's top exporting oil giant, had slashed its exports by more than a half of its usual levels in the previous months, two refining sources with the company said this week, adding that the refiner preferred to sell its products at home as product prices in international market were lower due to lockdowns while freights were high.
Fellow refiner Petrochina, on the other hand, made even heavier cuts to its exports, with the four leading export refineries polled planning to export a mere 10,000 mt of gasoline from their usual volumes, which averaged 1.28 million mt/month in 2019, Platts reported.
Looking forward in June, the recovery was likely limited as the state-owned oil giants capped their export plans, trading sources said.
For example, Sinopec's exporting-oriented Shanghai Petrochemical plans to skip seaborne exports of oil products in June, even though the refinery's utilization rate is set at 97% for June versus 91% in May, Platts reported. The refinery's gasoil and jet fuel exports have previously hit highs of 150,000 mt/month and 95,000 mt/month, respectively.
Product exports over January-May were up 10.4% on the year at 29.9 million mt, GAC data showed.
Meanwhile, China's oil product imports fell 9.3% on the year to 13.4 million mt in the first five months.
As a result, China's net oil product exports surged 34% on the year to 16.49 million mt in the period, the GAC
China's preliminary import, export data
(Unit: million mt)
Source: China's General Administration of Customs