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China set a new monthly crude oil import record in April and continues to import ever-increasing volumes of crude oil this year, accounting for about two-thirds of the growth in global demand of oil in 2019.
However, a rough estimate of current trends in oil consumption in China suggests that the US-China trade war has affected Chinese industries and that nearly half of the rise in crude imports has been stored up to now. this year, according to Reuters columnist Clyde Russell, which offers an interesting perspective on whether the skyrocketing of China's crude oil imports accurately reflects what is happening with the Chinese economy .
Signs indicate a slowdown in economic growth in China, while inventories – at high levels since the beginning of the year – could decelerate later in 2019 if oil prices reach a level deemed high by Beijing to be able to constitute stocks at the current rate.
China reached a new monthly record of 10.64 million bpd in crude oil imports in April this year, while refiners rushed to supply Iranian oil before the US pulled out exemption from sanctions. Then, China's crude oil imports fell in May compared with April's record, as Chinese refiners significantly reduced their imports of Iranian oil after US waivers were lifted and some public refineries were off-line for maintenance operations. planned.
According to Reuters' Russell estimates, the overall figure for Chinese crude oil imports indicates that imports in the first half of the year jumped 8.8 percent from the same period last year, or about 800,000 bpd.
This growth largely explains the estimated global oil demand growth for this year, which is currently set at 1.1 to 1.2 million bpd by OPEC, the IEA and the International Atomic Energy Agency. energy (AIE). Related: OPEC: oil and gas are part of the solution to climate change
However, it is believed that China has accelerated the commercial or strategic storage of crude oil, while boosting exports of refined petroleum products this year, which means that growth in real domestic demand for oil could be much lower.
The supply of crude oil in China – including imports and domestic production – minus refineries, suggests that between January and May, China put 1.21 million bpd in commercial or strategic storage, against 850,000 bpd put in storage at the same time last year, according to Russell's calculations.
As China does not provide figures on storage, it is therefore only an estimate, but this estimate suggests that China has accelerated its storage this year, with 45% of the growth in imports of crude passing through. in storage.
Add to that the increase in fuel exports and the real growth in crude oil consumption in China was only 340,000 barrels a day in the first half of 2019, according to Russell.
Earlier this year, data compiled by Wells Fargo Securities showed that diesel demand in China fell 14% in March and 19% in April, reaching its lowest level in a decade.
"We believe that the acceleration of the decline is probably related to the economic factors and the effects of the" war "of tariffs with the United States," said Roger Read, Wells Fargo analyst in the area of Energy, quoted in a note at the end of May.
More recently, BlackRock, the largest asset management company in the world, said the Chinese economy was on the verge of a "lull" because of the trade war that has become the main engine of the economy. and global markets. According to BlackRock, investors are "overly optimistic" that the stimulus measures adopted by China will boost economic growth, said the manager of the South China Morning Post.
"We believe that China's GDP should be able to avoid falling below the 6% target, but some industries, especially those related to exports, will be affected, and jobs and wages may not remain so stable, even if GDP persists, "said Iris Pang, economist at ING. Wider China, said last week. Related: Power failure threatens oil production in Venezuela
In addition to slowing the economy, China's demand for crude oil, and possibly its imports, could be slowed in the near term by refiners limiting their refining activities in the third quarter, massive refinery slowing demand for fuel in the domestic market creating an overabundance of fuel, harming refining margins.
According to JLC International, Sinopec ZRC will reduce its daily crude oil consumption by 2.17%, while Tianjin Petrochemical is expected to reduce daily crude journeys by 5.12% in July.
So far this year, China has shown resilient growth in crude oil imports. However, the actual consumption of industrial and manufacturing crude may have been well below that suggested. In the future, if China were to reduce the crude oil storage rate in the event of a rise in the price of oil, its crude oil imports could indicate to the oil market that the world's largest oil importer was witnessing a sharp slowdown in oil prices. growth in demand for crude oil.
By Tsvetana Paraskova for Oilprice.com
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