China’s Oil Demand Grows, Outlook Gloomy

Copyright © 2021 Energy Intelligence Group

China’s oil demand appears to have grown in August for the first time in four months despite Covid-19 headwinds, as products exports fell and their imports rose, Energy Intelligence estimates.

Import and export quotas restrictions, together with a tightening of imports of bitumen mix — often hiding disguised crude imports — are changing China’s refined products import and export balance, and making it harder to read the direction of China’s oil demand.

China’s apparent demand for August rose to 14.27 million barrels per day, up 1.5% from July, and up 1.3% from a year ago, Energy Intelligence calculates, based on refinery throughput and net imports of 11 different refined products.

Jet Demand Tumbles

China’s jet demand plunged in August to 514,000 b/d, down 30.5% from July, after an outbreak of the Covid-19 Delta variant in end-July prompted Beijing to discourage air travel in August.

Refiners reduced their jet output the most since April 2020, while jet exports rose to 236,000 b/d, also their highest since April 2020 on the lack of domestic demand.

Hopes that demand would recover this month after strict Covid-19 restrictions brought the July Covid-19 outbreak under control, were dashed as a new outbreak, emerged in the southern province of Fujian this month.

The recent outbreaks have prompted the government to order people to stay home, which impacts jet demand. Around 88 million people traveled during last week’s mid-autumn festival in China, 87% of the pre-pandemic level but below the 99% recovery level over the Dragon Boat Festival (Jun. 12-14), analysts at JPMorgan said in a note.

Low Gasoline, Gasoil Exports; High Fuel Oil Imports

Gasoil exports fell to 130,000 b/d in August, their lowest since May 2015, while August gasoline exports fell to 155,000 b/d, their lowest since February 2019, leading China’s products exports to their lowest levels since July 2020.

Limited products export quotas, sluggish Asia-Pacific demand for refined products and tighter environmental standards for Chinese oil refineries are conspiring to bring product exports quotas down.

Concurrently, Beijing has lashed out at small independent refiners, also known as teapots, and is restricting their crude import quotas. It has also imposed a new consumption tax on bitumen mix, which makes importing the product as expensive as importing fuel oil, but with the added risk of being found out importing sanctioned Venezuelan or Iranian crude.

Both sets of actions are aimed at controlling the teapots’ growth, keeping an eye on their carbon emissions and boosting tax revenues for the government. But they have caused teapots to ramp up fuel oil imports in the short term.

China imported 401,000 b/d of fuel oil in August, its highest level in several years, at the same time that its imports of bitumen mix fell to 367,000 tons, its lowest level since early 2020.

Replacing crude with fuel oil represents a step back for teapots, and for Beijing, which started allowing them to import crude in 2015 to encourage them to run a cleaner fuel and shut down outdated facilities. Their higher fuel oil imports could also come under scrutiny — if they last.

The government is expected to issue another round of crude import quotas either this week or after the Chinese Oct. 1-7 national holidays.

Further Slowdown Expected

Continuing Covid-19 outbreaks and the strict restrictions that come with China’s quick moves to control them, together with a rush for provinces to meet their 2021 environmental targets, could further cap China’s domestic oil demand, as well as its products exports and crude import quotas for the remaining of the year.

Nomura Research last week cut their annual GDP growth forecast for 2021 to 7.7% from 8.2%.

China's August Apparent Oil Demand
('000 b/d)Aug '21Jul '21Aug '20M-o-M %Chg.Y-o-Y %Chg.
Apparent Oil Demand
Refinery Throughput13,79613,96414,106-1.2%-2.2%
Product Imports1,3701,2201,03712.332.1
Product Exports8991,1251,054-20.1-14.7
Net Imports47195-17396.6-2,812.4
Apparent Demand14,26714,05914,0891.51.3
Products Demand
Fuel Oil92671245430.1103.8
China's Jan-Aug Apparent Oil Demand
('000 b/d)Jan-Aug '21Jan-Jul '21Jan-Aug '20M-o-M %Chg.Y-o-Y %Chg.
Apparent Oil Demand
Refinery Throughput14,20114,19213,1690.1%7.8%
Product Imports1,2051,1821,1292.04.7
Product Exports1,4061,4801,353-5.09.4
Net Imports-201-298-224-32.632.8
Apparent Demand14,00113,89512,9440.87.3
Products Demand
Fuel Oil6065576348.9-12.1

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