(Clyde Russell is a Reuters market analyst. The views expressed
are his own.)
By Clyde Russell
LAUNCESTON, Australia, Oct 22 (Reuters) – Is China’s rise to
be the world’s top net oil importer as bullish as it sounds, or
are there still reasons to be cautious?
As is often the case with China there are contradictory
indicators that serve to muddy both the current state of its oil
markets and the likely future trends.
Crude oil imports rose to a record 6.25 million barrels per
day (bpd) in September, up 27 percent from a year earlier and
besting the previous record of 6.15 million bpd set in July.
This helped to make China the world’s largest net oil
importer, ahead of the United States, a situation that is likely
to persist, according to the U.S. Energy Information
Administration.
But at the same time China’s implied oil demand fell 1.8
percent in September from a year earlier to 9.61 million bpd,
its first year-on-year decline in 17 months.
Implied demand, calculated by adding refinery throughput to
net fuel imports, has been on a softening trend for much of the
year, hitting a one-year low in August of 9.38 million bpd.
The usual suspect for reconciling strong crude imports with
softer implied demand is changes in inventory levels – which
aren’t officially disclosed.
It’s likely that the overall strength in the past three
months in crude imports is due to re-stocking and the build-up
of commercial inventories ahead of the commissioning of new
refinery units.
It’s also likely that refinery maintenance has served to
lower total throughput, making implied demand look weaker than
actual demand.
But there are also some other figures that call into
question just how strong demand is in China.
Crude imports for the first nine months of the year have
averaged 5.64 million bpd, up 310,000 bpd, or 5.8 percent, on
the same period last year.
That sounds like a reasonably strong growth rate, but it’s
worth bearing in mind that exports of refined products have also
grown, and by a much faster rate.
Product exports were about 571,000 bpd for the first nine
months of the year, a gain of 20 percent, or about 97,000 bpd.
This means that just under a third of the additional crude
imports by China have been effectively exported again as fuels.
Customs data show that gasoline exports are up 77 percent in
the first nine months of 2013 over the same period a year ago,
while those for light diesel have jumped 92 percent.
It’s also worth noting that imports of refined products have
also risen, but at a slower pace than those for exports.
Imports are up 5.2 percent to the equivalent of about
814,000 bpd and here the big gainers are naphtha at 36 percent
and petroleum coke at 46 percent.
It’s interesting that both of those products aren’t used as
transport fuels as with major refined products such as gasoline
and diesel. Naphtha is mainly used as feedstock for
petrochemicals and petroleum coke for making ceramics and steel.
What this shows is that China’s refineries are producing
more transport fuels than needed, and some of the additional
crude imports are feeding this surplus production.
But refinery output has also been softer than expected so
far this year.
The research institute of China’s top oil company, CNPC,
forecast in January that the nation would process 489 million
tonnes of crude in 2013, up 5.4 percent from last year.
In the nine months to September, 355.81 tonnes of crude were
processed, a rate that if maintained would result in a total of
474 million tonnes for the whole of 2013.
While it’s likely that the commissioning of up to 540,000
bpd of new capacity by the end of the year will result in higher
refinery throughput, it may be the case that 2013 will struggle
to match 2012’s processing.
It’s also possible that the new capacity will result in
strong crude imports for the final quarter of 2013 as refiners
build up commercial inventories, which are normally equivalent
to at least three weeks of daily capacity.
But even if this is the case, it’s likely that China’s crude
imports and implied demand will struggle to match forecasts from
both CNPC and the International Energy Agency.
CNPC predicted implied demand of 10.28 million bpd, while
the IEA expects 10.14 million bpd.
With first-half implied demand at 9.82 million bpd, and
third-quarter averaging about 9.58 million bpd, it’s hard to see
sufficient strength in the fourth quarter to hit the forecasts.
It seems that for now, strength in China’s crude imports is
being channelled into stockpiles or fuel exports.
(Editing by Tom Hogue)
