China continues to build up its oil stockpiles
China increased the pace at which it added crude to its inventories in March as the world’s biggest oil importer snapped up record imports from Western-sanctioned Russia.
A total of 790,000 barrels per day (bpd) was added to China’s commercial or strategic stockpiles in March, up from 570,000 during the first two months of 2024, according to calculations based on official data.
For the first quarter as a whole, China boosted inventories by 670,000 bpd, a figure that to some extent undermines the prevailing market view that China’s oil demand is strong.
This is especially the case since its crude imports were actually slightly weaker in the first quarter at 11.02-million bpd, down from 11.06-million in the same period in 2023.
STORAGE
China doesn’t disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate is possible by deducting the amount of crude processed from the total of crude available from imports and domestic output.
The total crude available to refiners in March was 15.88million bpd, consisting of imports of 11.55-million and domestic output of 4.33-million.
The volume of crude processed by refiners was 15.09million bpd, leaving a surplus of 790,000 to be added to storage tanks.
For the first quarter, the total crude available was 15.31-million bpd, while refinery throughput was 14.64-million bpd, leaving a surplus of 670,000 bpd.
The picture that emerges from the first quarter is that China’s demand for imported crude oil was effectively flat, and that refiners are still boosting stockpiles even as prices start to increase. The crude that landed in China in March was probably arranged in a window starting from late December to early February, a time when crude prices were still lower than their 2023 peaks and had yet to commence their recent rally.
Benchmark Brent futures dropped to $72.29 a barrel on December 13, the lowest since June, having been on a downward trend since the 2023 peak of $97.06 a barrel reached on September 27.
Since the December low, Brent initially stayed in a broad range around $75-$85, before breaking higher from midMarch to reach a 2024 peak of $92.18 on April 12, amid ongoing concern about an escalation of tensions in the Middle East arising from the conflict between Israel and Hamas.
Brent closed at $87.42 on Wednesday, after economic data from China showed that the economy grew more than expected in the first quarter, though other indicators, such as property investment, retail sales and industrial output remained weak.
The question for the market is whether China’s economy is on the road to recovery, and therefore whether oil demand will improve in coming quarters. And even if crude demand does accelerate, will China buy more from the seaborne market even though prices have risen, or will it turn to the stockpiles it has built in the first quarter?
While China’s refiners don’t disclose what grade or origin of crude is being added to inventories, it’s likely that Russian oil is one of the main types being stored.
China’s imports from Russia in March were 1.51-million bpd from the seaborne market and 890,000 via pipeline, a combined total of 2.4-million, according to date compiled by LSEG Oil Research.
DISCOUNTS
That’s was up from 2.19-million bpd in February and the highest level of imports from Russia since China ramped up purchases in the wake of Moscow’s February 2022 invasion of Ukraine, which led discounts on Russian crude as Western nations imposed sanctions.
In contrast to higher arrivals from Russia, China’s imports from its former top supplier, Saudi Arabia, dropped to 1.59million bpd in March, the lowest since December, according to LSEG.
The move to Russian crude supports the view that China’s refiners are maximising imports of cheaper grades, which also include oil from Iran and Venezuela.