In May, China posted a rebound in crude oil refinery processing and record-high imports, but the seemingly bullish indicators are not actually what they seem. Some other factors raised concerns capping the optimistic view on crude strength in the country.
Two main factors could be elaborated further to analyze, which are the amount of crude flowing into commercial and strategic storage tanks, and the amount of crude that is ultimately being exported back out of China in the form of refined fuels.
An estimation said that in May, China imported 11.296 million bpd while the country’s own output was 3.88 million bpd, providing a total of 15.18 million bpd available.
Refinery throughput in the month showed a jump of 8.2% year-on-year at 1369 million bpd, the fourth-highest on record on a barrels per day basis. A gap of 1.49 million bpd was posted from the substrated refinery throughput from total available crude, presumably going into commercial storage or the strategic petroleum reserve (SPR).
According to calculations based on official data of crude imports, domestic output, and refinery processing, in the first five months of the year, the trend of rising inventory builds continued with 1.88 million bpd likely have gone into tanks. This is comparable to the same period last year, with 1.21 million bpd went into storage.
The volume going into SPR last month was higher compared to the imports in the January-May period by 620,000 bpd. However, the rate of storage was slowed compared to the previous four months, indicating that consumption may not be quite as strong as suggested by strong headline numbers for crude imports and refinery processing.
Other than that, in May, China’s exports of refined fuels plunged to 3.89 million tonnes or 1 million bpd, down from 2.13 million bpd in the previous month. The reading was understandable as Asian fuel demand was hurt by the coronavirus-related lockdowns.
However, in the January-May period, fuel exports soared by 10.4% year-on-year to 1.57 million bpd.
All in all, China stored more crude and exported more refined products in the first five months of 2020 from last year’s level in the same period. These readings signaled the actual domestic consumption in China has been weaker.
Therefore, the overly optimistic redactions of China’s crude and fuel consumption showing a strong recovery from the pandemic still needs to be taken with a grain of salt.
