China is taking advantage of the drop in oil prices that began in October to increase its stockpiles of cheap crude oil.
Reuters columnist Clyde Russell estimates that China significantly increased the amount of crude oil headed to storage in December alone, marking the highest stockpiling rate in six months.
China does not report commercial or strategic inventories, so analysts try to estimate stockpiles by subtracting processed crude from all available crude oil from imports and domestic production.
China added the most storage in December since June 2023, according to Russell’s estimates. Last month’s stockpiling rate was estimated at approximately 1.39 million barrels per day (bpd), a significant increase from the estimated increase in crude oil inventories of approximately 20,000 barrels per day in 2019. November.
Considering that there is a time lag of approximately two months between crude oil purchases, nominations, and the arrival of crude oil in China, we conclude that Chinese refiners continued to buy more crude oil when prices were falling. will be possible. For example, imports and inflows into stockpiles were very low in November as a result of less oil being purchased in September, when oil prices reached more than $95 per barrel of Brent, the highest level in 2023. There is a high possibility that it is.
With prices falling in the fourth quarter of 2023, China has resumed increasing import levels and building inventories, as evidenced by Russell’s December forecast. Related: Tadawul Group’s move intensifies competition in commodity trading through DME investment
Inflows into China’s crude oil inventories for all of 2023 are estimated to be around 760,000 barrels per day, up from 740,000 barrels per day a year ago.
China recorded a record amount of crude oil imports last year, surpassing the annual record since 2020, as fuel demand recovered after coronavirus restrictions were lifted in early 2023.
According to data from the General Administration of Customs, China’s crude oil imports in 2023 increased by 11% from the previous year to 11.28 million barrels per day. Crude oil imports in 2023 exceeded the record high level of 10.81 million barrels per day in 2020, when China took advantage of the plunge in oil prices and imported large quantities of cheap crude oil.
China’s crude oil imports recovered from November’s low levels in December 2023 alone, averaging 11.39 million barrels per day. This was significantly higher than the 10.33 million barrels per day of crude oil imports in November, when China’s crude oil intake decreased by 9.2% year-on-year and marked the first annual decline in crude oil arrivals since April 2023.
Imports accelerated in December as prices fell, and as a result, the pace of oil stockpiling also accelerated. China’s crude oil purchases and estimated stockpiles had slowed significantly in October and November, after oil prices reached 2023 highs at the end of September.
December’s high inventory buildup is likely to continue early this year, as concerns about demand and oversupply keep oil prices below $80 a barrel.
With crude oil prices currently down about 20% from their 2023 high of $98 per barrel, Chinese refiners were forced to buy larger quantities of crude oil earlier this year, especially at prices around $75 per barrel. There is a possibility that there will be an increased incentive to import.
Analysts and trade sources told Reuters this week that Chinese refiners are looking to stock up on oil priced below $80 at the start of the year in anticipation of a surge in fuel demand in the second half of the year.
“Due to high freight rates, we are collecting crude oil from all over the world except the US,” an oil trader at a Chinese refiner told Reuters.
Analysts say new crude oil import and fuel export quotas allocated to refiners will also encourage increases in crude oil imports, refinery throughput and fuel exports to Asian countries early this year.
China also just allocated large crude oil import quotas to refiners, raising quotas by about 60% since the beginning of last year and giving some companies year-round import quotas. Analysts said the early allocation of large import quotas would allow refiners to better plan their crude purchases in 2024.
Written by Tsvetana Paraskova, Oilprice.com
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