Crude oil imports to China in May fell to their lowest since October 2017 because of the price spike resulting from the Persian Gulf tanker traffic disruption.
The May total stood at 33 million barrels, or 7.8 million barrels daily, Bloomberg reported, citing Chinese customs data. This compares to an average daily import rate of 11.6 million barrels last year. Refinery run rates are down as well, as are fuel exports, with Beijing careful to make sure there is enough diesel and gasoline for the domestic market.
The news will likely push oil prices lower as China’s reduced appetite for imported crude is widely seen by traders as a cap on international prices. Demand for oil in China, however, has not fallen particularly. The only reason the country’s refiners can afford to slash imports is the substantial inventory cushion available, estimated at over 1 billion barrels. However, this cushion is not infinite and, as suggested recently by analysts, China will at some point start to ramp up imports.
China’s subdued oil buying from abroad “represents one of the largest offsets to the shock, second only to Saudi rerouting flows and larger than coordinated SPR releases from the U.S., Europe, and Japan,” Societe Generale commodity analysts said earlier this week. However, strategic and commercial oil inventories need replenishing at some point, and when that point is reached and the war is still not over, we are likely to see higher oil prices again.
ING commodity analysts made a similar point last week. “Sizeable inventories in the lead-up to the war have provided a buffer for the market,” Warren Patterson and Ewa Manthey wrote on Friday. “This buffer is shrinking with every passing day. With the seasonally stronger summer still ahead of us, we could see demand grow by more than 3m b/d quarter-on-quarter in the third quarter. The pace of inventory declines will only intensify through the July-September period.”
By Irina Slav for Oilprice.com
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