--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Feb 17 China's record imports of crude oil in January have largely, and correctly, been dismissed by the market as being artificially boosted by restocking ahead of the Lunar New Year holidays.
However, there is always the danger that in attributing all the exceptional strength in imports to one factor, other influences may be discounted as well.
There is little doubt that January's surge in imports to 6.63 million barrels per day (bpd) was largely due to refiners buying ahead of the week-long holiday that started at the end of January and went into early February.
The imports were 5 percent higher than the prior record, itself achieved in December of last year.
More importantly they were 17 percent higher than the 5.66 million bpd crude imports averaged through 2013.
It's simply not possible that crude oil demand has gained by almost 1 million bpd in China, so the logical thing to expect is that February's imports will be lower.
But what if February's imports remain robust, and don't fully "pay back" the strength in January's arrivals?
Thomson Reuters Oil Analytics, which assesses crude flows based on vessel movements, expects Chinese oil imports of about 26 million tonnes in February, which is equivalent to about 6.8 million bpd.
If this forecast proves to be accurate, it would result in another record month on a barrels per day basis.
Even if the forecast is optimistic and some of the February cargoes were counted in January's arrivals by customs, the risk is still that oil imports for the first two months of 2014 may be at record levels.
However, this wouldn't automatically signal that demand growth is accelerating in China.
SURGE IN STOCKPILING
Part of the strength in imports could be put down to an increase in both commercial and strategic stockpiling.
Refinery throughput averaged 9.61 million bpd in 2013 and was 9.93 million bpd in December.
Since then two new refineries with a combined capacity of 440,000 bpd have started.
If this additional capacity is added to the 2013 average, it takes the likely processing rate for the first few months of 2014 to around 10.05 million bpd.
Imports in December and January averaged 6.47 million bpd and domestic output is averaging 4.2 million bpd, meaning that for the past two months about 10.67 million bpd of crude was available for processing.
While January's throughput is likely to be higher than December's 9.93 million bpd, it's unlikely to be as high as the amount of crude that was available.
This means that some crude has been finding its way into storage tanks.
Given that most refineries operate with around 21 days of crude as a working inventory, this means that the two new plants would have imported around 9 million barrels to ensure sufficient working stocks.
It's likely that they did this over a period of several months, but even assuming six months, it still means a boost of 50,000 bpd to imports. However, it's more likely that the inventories were bought over a shorter timeframe, and if three months is assumed, then the boost to imports is around 100,000 bpd.
But there is also the possibility that strategic stockpiles are being filled, with a report from Barclays on Feb. 14 pointing out that the 20.1 million barrel Tianjin facility may have been receiving cargoes.
Another strategic storage, the 18.9 million barrel Huangdao underground cavern is also likely to be ready for filling this quarter, Barclays said.
If these strategic storages are filled over a six-month period, it would boost imports by about 216,000 bpd, thereby helping explain the recent strength in crude imports.
China doesn't divulge details of strategic storages, and also doesn't release actual volumes in commercial stockpiles, making it difficult to calculate precisely the true state of demand.
This makes it key to look at the refinery throughput numbers and net fuel imports.
Rising refining processing will indicate increasing consumption, and the level of net imports will reveal how much of the increased throughput is being exported as refined fuels.
But for now, the risk is that dismissing the January crude import record as solely, or even mainly, as a result of the Lunar New Year holiday ignores that stockpiling and demand is growing at a faster rate than the market currently believes.
(Editing by Joseph Radford)