China buys excess oil and wants Russia to do more: Russell

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Launceston — China continues to import more crude oil than it needs, as low refinery processing rates, softening domestic demand, and curbing refined fuel exports are helping to build stockpiles. increase.

According to calculations based on official data, China, the world’s largest oil importer, added about 2 million barrels (bpd) of oil per day in April.

This increased from about 610,000 bpd added to commercial or strategic stockpiles in March, with storage flows of about 960,000 bpd for the first four months of 2022.

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The influx of barrels into the storage tank came in reports that China was negotiating to buy Russian crude oil to increase its strategic petroleum reserves (SPR), with other predominantly Western buyers. Ukraine is taking advantage of significant discounts as it avoids Russian oil following the invasion of Moscow.

China does not disclose the amount of crude oil in and out of its strategic and commercial stockpiles. However, it can be estimated by subtracting domestic output from the total amount of crude oil available from imports and the amount of processed crude oil.

Crude oil imports in April were 10.47 million barrels / day, domestic production was 4.14 million barrels / day, and the total available at the refinery was 14.61 million barrels / day.

The refinery throughput in April was 12.61 million barrels / day. This means that the refinery’s throughput is about 2 million barrels / day less than the available supply.

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Refinery throughput in April was the lowest since March 2020. This reflects fuel demand weakening in a continuous blockade aimed at eliminating the COVID-19 epidemic in several cities, including Shanghai’s financial and port hubs.

With so many factors currently affecting the oil market, the question is whether China’s oil storage could have a significant impact in the coming months.

Faced with that, China’s purchase of more than 2 million barrels / day in April is bullish on oil prices. That’s because if China doesn’t receive the crude oil, additional supply could cover the price.

However, physical crude oil cargo was arranged months ago, so April imports had such a long lockdown before Russia’s invasion of Ukraine on February 24, and by Chinese oil refiners. It’s also worth noting that it was mainly purchased at an unexpected time. In Shanghai.

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China is expected to increase crude oil imports in May slightly from April levels, with Refinitiv Oil Research forecasting arrivals of 10.53 million barrels / day from 10.47 million barrels / day last month.

Beijing’s strict Zero-COVID policy means that there remains a risk of a new blockade, but refinery processing rates will continue to rise in May given the signs that Shanghai and other cities are slowly reopening. There is a possibility of some recovery.

Russian cargo

In the coming months, China is likely to increase crude oil imports, especially from Russia, to take advantage of significant discounts.

This will allow other suppliers to China, especially Iran and Venezuela, to get crude oil at a lower price. China is a major customer as it is ready to oppose US sanctions on purchases from these two producers.

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Another uncertainty is whether Chinese refiners will return to the refined fuel export market.

They have dramatically reduced exports in recent months amid a shortage of available export quotas.

Diesel exports fell to 530,000 tonnes in April, down from 2.72 million tonnes in the same month last year, but shipments in the first four months of the year fell 82% to 1.61 million tonnes.

Gasoline exports in April were 980,000 tonnes, down from 1.47 million tonnes in the same month in 2021, but shipments in the first four months were 38.7% below year-on-year levels.

There are still no official signs that more export quotas will be granted, and Refinitiv estimates that the current allowance is almost exhausted.

This suggests that China will move significantly away from the Asian commodity market in the coming months and could weaken oil imports from suppliers that do not offer significant discounts.

(Edited by Kim Coghill)