China’s consumer price index (CPI) rose just 0.2% year-on-year in July, undershooting expectations and raising concerns over weak domestic consumption. But for oil markets, the low print may be misleading.
Refiners remain active. According to Reuters, China’s surplus crude inventories surged by 1.3 million barrels per day in June, the largest monthly build since 2020. Rather than signaling oversupply, analysts say it gives refiners room to boost throughput into the second half.
Crude runs reached 15.15 million barrels per day in June, the highest level since September 2023, based on ECNS data. State-owned refiners, including Sinopec and PetroChina, are operating above 80% capacity, up from 73% the previous month, as they rebuild fuel inventories that had fallen to six-year lows.
China’s muted CPI reading gives policymakers room to keep monetary conditions loose, sidestepping any credit tightening that might squeeze transport or industrial fuel demand. According to Bloomberg, the softer inflation outlook leaves the central bank with flexibility to support growth without immediate pressure to raise rates. Gasoline and jet fuel demand also remain strong, even as diesel margins continue to lag due to sluggish construction activity.
As reported by Reuters, Barclays expects China’s oil demand growth to ease from 330,000 barrels per day in the first half to around 150,000 bpd for the full year. Still, restocking and rising export quotas are expected to keep import levels steady.
Markets are also eyeing whether China will continue building commercial stocks or shift to strategic releases. Either path supports near-term crude demand.
Despite headline inflation weakness, China’s strong refinery activity and rising crude inventories suggest oil demand remains structurally intact, and oil traders appear to be viewing the CPI data positively.
By Charles Kennedy for Oilprice.com
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