China’s crude oil imports rose above 7m barrels per day for the first time in December, reaching record levels as plunging international prices allowed the world’s largest importer to fill strategic and commercial reserves.
International crude prices are near six-year lows, revisiting levels last seen in the wake of the global financial crisis. While price controls over transport fuels limit the boost to the Chinese economy, the drop has presented an unusual opportunity for China to increase reserves of crude oil at relatively little cost.
China imported 7.15m bpd in December, bringing its full-year crude imports to a record 308m tonnes up nearly 10 per cent on the year. Some of that additional demand reflects economic growth and new refineries coming on line but most is probably going into tank farms, according to market watchers.
Over the course 2014 Chinese crude imports averaged 6.2m b/d, up 530,000 b/d or 9.6 per cent on 2013, when the growth rate was 5 per cent.
China is the world’s biggest oil importer and its strategic reserve programme has long been a matter of conjecture, although the country has pledged greater transparency over its stock builds. In November, Beijing announced for the first time the status of the first phase of commercial storage facilities, but the pace at which the second and third phases are being completed and filled was not announced.
New commercial storage facilities plus an estimated 101m barrels of new strategic petroleum reserves (SPR) operated by the country’s three state oil companies will lift China’s crude demand by about 150,000 b/d in 2015, according to estimates by Argus Media. In 2014, China is reckoned to have added 100m barrels to its stockpiles.
Analysts had expected a jump in December crude imports because Chinese buying accelerated in October as the oil price rout gathered pace.
Chinaoil, the trading arm of China National Petroleum Corporation, went on a huge buying spree, snapping up millions of barrels of Middle East crude as global oil prices slumped.
It bought more than 20m barrels of Dubai, Oman and Upper Zakum grades in — many of them from Unipec, the subsidiary of Chinese state oil company Sinopec. Most of these cargoes arrived in December.
“The increase in December imports is also mirrored in the number of very large crude carriers heading to China, which picked up sharply from end-September, averaging a record high 76 in November,” said Amrita Sen, chief oil analyst at Energy Aspects, a consultancy.
“VLCCs heading towards China remained elevated through early December but have eased off since then, and this has also been evident in physical differentials, which have fallen sharply in the absence of Chinese buying, especially as refinery turnrounds have commenced globally.”
Chinese import data can be “lumpy” on a monthly basis but tend to rise more smoothly on a quarterly basis, cautions Thomas Hilboldt, Asian oil and gas analyst with HSBC in Hong Kong. “Will the January numbers be as shockingly headline-generating? The probability is not. You have to absorb it at some point.”
One sign that China’s rising crude imports are not all demand-driven is the noticeable increase in refined products exports, as China’s rise in oil refining capacity outstrips demand. Chinese oil products exports rose 4 per cent in 2014, to nearly 30m tonnes.
“Not only is China’s oil product demand slowing as Chinese consumption becomes more efficient and less oil intensive, China’s appetite for crude imports will also plateau once it completes building its SPR as the pace of refinery buildouts is also slowing,” said Ms Sen.
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