China’s crude imports jumped in November, but storage flows also increased: Russell

(Repeats a previously published column. No change in text.)

LAUNCESTON, Australia, Dec 16 (Reuters) – China’s crude imports hit a 14-month high in November, but much of the excess volume is likely to end up in storage as refinery processing remains subdued.

China, the world’s biggest crude importer, had a surplus of about 1.77 million barrels per day (bpd) in November, according to calculations based on official data.

This is the second largest monthly surplus this year and behind only 1.85 million bpd in August.

The scale of excess crude destroys any bullish interpretation of the surge in November oil imports.

China does not disclose the amount of crude oil coming into or out of the strategic and commercial reserves, but an estimate can be made by subtracting the amount of crude oil processed from the total amount of crude oil available from imports and domestic production.

China’s refineries processed 58.51 million metric tons of crude in November, equivalent to about 14.24 million bpd, according to data released by the National Bureau of Statistics on Monday.

This was a slight increase of 0.2% from November last year, the first month in the last seven months when refinery throughput increased from the same month in 2023.

China imported 11.81 million bpd in November, the strongest month since August last year and up 14.3% from November 2023.

Domestic output rose 0.2% to 4.20 million bpd in November from a year earlier.

Including imports and domestic production, a total of 16.01 million bpd of crude oil is available to refineries.

Subtracting the processed volume of 14.21 million bpd leaves a surplus of 1.77 million bpd.

For the first 11 months of the year, China’s surplus crude oil stood at about 1.12 million bpd, about 360,000 bpd more than the total amount stored in 2023.

It is worth noting that not all of this surplus crude is likely to be included in storage, with some being processed in plants that is not captured by official data.

But even given the lag in official data, it is likely that China is importing crude at a rate far greater than it needs to meet its domestic fuel requirements.

The question is, why are China’s refineries buying more crude than they are processing?

It’s quite clear that domestic fuel demand is not getting stronger, and given the growth in sales of electric vehicles, it has already peaked when it comes to gasoline.

Demand for diesel is also weak due to the switch to trucks running on liquefied natural gas.

It is more likely that China’s refiners are stockpiling crude because they feel current prices are reasonable and they are hedging against any rally next year.

Brent crude futures, the global benchmark, were in decline when cargoes arriving in November were to be settled.

Brent fell from a high of $87.95 per barrel on July 5 to a low of $69.00 on September 11, just when many of the November cargoes would have been arranged.

Brent hit its highest level since September lows at $81.16 a barrel on October 7, but if the rally causes China’s refiners to ease purchases, it will only be reflected in January cargoes arriving.

However, since the October high, Brent has returned to trading in a fairly narrow range, stable around $73 a barrel, a level low enough to encourage ongoing buying interest by China’s refiners. It is likely to happen.

The trick for oil markets is not to confuse higher imports by China with an improvement in real fuel consumption.

While strong imports will serve to support crude oil prices, continued improvement in refinery processing will be needed to convince the market that China is once again showing growth in solid oil demand.

The views expressed here are those of the author, a Reuters columnist.

(Editing by Stephen Coates)