China’s imports of crude oil surged to the second highest on record in March, capping off a strong first quarter as the world’s biggest importer of the fuel re-opened its economy.
Customs data on Thursday showed China imported 52.3 million tonnes of crude in March, the most since the all-time high of 53.18 million in June 2020.
The March total is equivalent to 12.37 million barrels per day (bpd), and brought total imports for the first quarter to 11.11 million bpd, a gain of 6.7%, or 700,000 bpd, from the same period in 2022.
The headline import figures are impressive and will go a long way to confirming the market view that China’s fuel demand is surging as the economy rebounds after Beijing ended its strict zero-COVID policy.
However, a leap in exports of refined products in the first quarter undercuts that view.
Customs data showed March refined fuel exports were 5.5 million tonnes, which works out to about 1.42 million bpd if the BP Plc conversion factor of 8 barrels of product per tonne is applied.
For the first quarter, China’s refined product exports were up 59.8% to 18.2 million tonnes, equivalent to about 1.62 million bpd.
For the first quarter in 2022, refined fuel exports were 1.01 million bpd, meaning they have risen by 610,000 bpd in the same period this year.
Taking crude oil import growth of about 700,000 bpd in the first quarter and subtracting refined product export growth of 610,000 bpd leaves an increase in demand in China’s domestic market of under 100,000 bpd.
This is a back of the envelope calculation that doesn’t account for the processing gain of around 7% in volume when crude is refined into products.
Nonetheless, if the increase in refined product exports is factored in, it appears that actual fuel demand growth in China’s domestic was very modest in the first quarter.
There are two ways of looking at this when assessing the likely path forward.
The first is that the surge in China’s domestic fuel consumption is still coming, and therefore crude imports are likely to remain high in order to meet this increased demand.
The second is that expectations of China’s rebound have been overstated and the ambitious forecasts from several international bodies and the analyst community have been overstated.
It’s still too early to say which of those two scenarios is most likely to play out.
IMPACT OF FUEL EXPORTS
There are also several other questions for the market to ponder, such as do strong Chinese refined fuel exports, while increasing China’s crude imports, actually result in lower demand elsewhere as China’s products displace supplies from other exporters?
Certainly, since Chinese refiners returned to the product export markets with a gusto this year, profit margins for products like diesel have been contracting.
The gross profit margin, or crack, for producing gasoil, the building block for diesel and kerosene, at a Singapore refinery dropped to $15.77 a barrel on Wednesday, the lowest since January last year and down 59% from its peak so far in 2023 of $38.89 on Jan. 25.
It’s likely that China’s refined product exports will remain elevated in April as refiners use up their quotas and Beijing encourages exports as part of efforts to boost economic activity.
This means crude oil imports may remain robust, although Refinitiv Oil Research is expecting a pullback in China’s arrivals in April as more refining units undergo maintenance and as newly-commissioned units complete building their working inventories.
Overall, the current picture in China is one of strong crude imports and even stronger refined product exports.
