China is an outlier as it pumps up oil stockpile
• Numbers suggest the country almost doubled its stored crude in the first quarter compared with a year ago
Rather than cutting back on imports, China pushed crude oil into storage tanks at almost double the rate in the first quarter of 2020 than it did in the same period in 2019 as the coronavirus hit domestic consumption.
China does not release official data on flows into strategic and commercial stockpiles, but an estimate can be made by subtracting the amount of crude processed by refineries from the total volume of oil available from imports and domestic output.
China’s crude oil imports were 10.2-million barrels per day (bpd) in the first three months of the year, according to customs data.
Domestic output was 3.74million bpd, giving a total of available crude for the quarter of 13.94-million bpd.
Refinery throughput for the first quarter was the equivalent of 11.96-million bpd. Of the total available crude, 1.98-million bpd was not processed by refineries.
Doing the same calculations for the first quarter of 2019 shows imports of 9.83-million bpd, domestic production of 3.84-million bpd and refinery processing of 12.6-million bpd, leaving a gap of 1.07-million bpd.
The numbers suggest that China almost doubled the rate at which it put oil into storage in the first quarter of 2020, to deal with the loss of consumption as the coronavirus caused much of the country to be placed in some form of lockdown.
It is also worth noting that China’s exports of refined fuels also rose in the first quarter of this year, reaching 18.02-million tonnes, up 9.7% from the same period 2019.
A breakdown by type of refined product is not yet available, but it is likely the bulk of the increase was in petrol and in middle distillates such as jet fuel and diesel.
Overall, the picture that emerges from the first quarter is that China decided to increase crude storage flows rather than cut back on imports.
LOSS OF DEMAND
The other factor in dealing with the loss of demand from the coronavirus was that refinery throughput did drop and exports of refined fuels increased, but not by huge margins.
However, rather than being a template for the rest of the world as it battles to contain the coronavirus, China is likely to be something of an outlier.
Other big crude-importing countries lack the ability to simply divert oil into storage on the scale that China can, meaning they will have to lower the amount of crude being imported. Even countries with large commercial and strategic storages, such as the US, will find that the volume of crude available is so much that it will overwhelm available tank space within weeks, rather than months.
China’s ability to double storage flows to almost 2-million bpd over an entire quarter makes it unique, not a model.
To put China’s storage flows in perspective, at about 2-million bpd they are 25% higher than the total crude consumption of the UK, the world’s sixth-largest economy.
It is also likely that China will continue to suck up crude oil for its stockpiles, especially given the collapse in prices since the coronavirus caused much of the developed world to put their economies into some form of lockdown.
China is on track to import at least 9.35-million bpd of seaborne crude in April, up from 8.8-million bpd in March, according to Refinitiv vesseltracking data, filtered to show only cargoes already discharged, awaiting discharge or under way and due to offload before the end of the month.
Seaborne imports exclude pipeline volumes from Russia and Central Asia, which were about 843,000 bpd in March.
China’s appetite for imported crude for storage is probably one of the few bright spots for the embattled oil industry.
However, by itself it is nowhere near enough to compensate for the loss of an estimated 30-million bpd of global consumption.
OTHER BIG CRUDE-IMPORTING COUNTRIES LACK THE ABILITY TO SIMPLY DIVERT OIL INTO STORAGE ON THE SCALE CHINA CAN
IT IS LIKELY CHINA WILL CONTINUE TO SUCK UP CRUDE OIL FOR ITS STOCKPILES, ESPECIALLY GIVEN THE COLLAPSE IN PRICES