LAUNCESTON, Australia - China resumed storing crude oil in the first two months of the year with almost 1 million barrels per day (bpd) being added to inventories in January and February, rebuilding stockpiles after a rare drawdown toward the end of last year.
About 920,000 bpd were directed to inventories in the first two months of the year, according to calculations based on official data.
The build in inventories comes as refineries make use of new import permits for 2021, after the coronavirus pandemic and a dispute between exporters caused widespread market ructions last year.
China doesn’t disclose the volumes of crude flowing into strategic and commercial stockpiles. But an estimate can be made by deducting the amount of crude processed from the total amount of crude available from imports and domestic output.
Refinery throughput was 114.24 million tonnes in the January-February period, equivalent to about 14.13 million bpd, according to data released on Monday by the National Bureau of Statistics.
This was about the same level as in December, but was up from 12.07 million bpd in the first two months of 2020, reflecting the additional refining capacity China added last year.
Domestic crude oil output was 32.08 million tonnes in the first two months of 2021, equivalent to about 3.89 million bpd, a gain of 0.4% from the corresponding period a year earlier.
Imports for the first two months were 89.57 million tonnes, about 11.08 million bpd, according to customs data.
Putting imports and domestic output together gives a total of about 15.05 million bpd available to refiners in the January-February period.
Given that processing was 14.13 million bpd, this leaves a gap of about 920,000 bpd that flowed into commercial and strategic stockpiles.
GRAPHIC - China's refinery runs vs total available crude:
This reversed December’s draw of 1.24 million bpd, which was unusual as China doesn’t usually process more crude than it has available.
There was also a small draw of 200,000 bpd on stockpiles in October, and both months were a reflection of the unusual market dynamics that played out last year amid the global coronavirus pandemic and a brief price war between top exporters Saudi Arabia and Russia.
China’s crude imports soared in the wake of the April dispute between the leading members of the OPEC+ producer group that saw global benchmark Brent crude futures plummet to the lowest in nearly two decades.
It took most of the rest of the year for the backlog of imports to be cleared after massive congestion at Chinese ports, meaning that by the last quarter Chinese refiners had a surfeit of crude and many independents had exhausted their import permits, which resulted in lower imports in December.
This process has clearly been reversed in the first two months of 2021, with Chinese refiners snapping up cargoes as new import permits were issued, resulting in strong flows into inventories.
The question is whether this buying will be maintained, or whether storage flows will ease amid higher crude oil prices.
China is expected to import between 11 and 12 million bpd in March, according to preliminary data from Refinitiv Oil Research, meaning the pace seen in the first two months of the year is likely to be maintained, at least for now.
It’s worth noting that China’s crude imports for March would likely have been secured in December and early January, at a time when Brent crude was trading in a range between $47 and $56 a barrel.
It has since rallied to end at $68.88 a barrel on Monday, and has traded above $70 a barrel in recent days, the strongest price in a year.
The higher crude price may act as an incentive for Chinese refiners to draw on stockpiles again, or at the least decide not to add to them and rather import just enough to meet their processing needs.
Of course, a recovering economy in China and the rest of Asia as the worst of the pandemic passes will serve to boost fuel demand, which will serve to keep Chinese crude imports robust, but any additional demand for storage may be more muted.
The opinions expressed here are those of the author, a columnist for Reuters.
Editing by Lincoln Feast
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