LAUNCESTON: China likely cemented its spot as the world's biggest importer of crude oil in the first half of 2019, taking an additional 800,000 barrels per day (bpd), or about two-thirds of this year's expected global demand growth.
But the details behind China's rising crude imports are nowhere near as strong as the headline numbers suggest. IN fact, they support the view that the world's second-largest economy is feeling the headwinds from the trade dispute with its larger competitor, the United States.
Official figures for June crude imports will be released this week, but Refinitiv has estimated that China's seaborne and pipeline imports were 39.55 million tonnes, or about 9.62 million bpd.
If customs numbers due out on July 12 are in line with the Refinitiv estimate, it would mean that first-half imports were 9.87 million bpd, some 8.8% or 800,000 bpd higher than for the same period in 2018.
That looks like a solid performance. It accounts for two-thirds of the 1.2 million bpd global growth forecast last month by the International Energy Agency for 2019 as a whole.
But the question that is unanswered by the headline numbers is what has China done with the extra crude? It's here that the picture changes.
China doesn't provide details of flows into strategic and commercial storage, although it's well known that the country is only partially through its programme of building up 90 days of import cover.
However, an estimate of the amount of crude flowing into inventories can be made by looking at the total amount of crude available to refineries from imports and domestic production, and the amount of crude actually processed.
In the first five months of the year, official data showed imports of 9.92 million bpd and domestic output of 3.83 million bpd, for a combined 13.75 million bpd.
But refinery throughput in the first five months was 12.54 million bpd, implying that about 1.21 million bpd was put into commercial or strategic storage.
By comparison, for the first five months of 2018, imports were 9.07 million bpd and domestic output 3.8 million bpd, for a total of 12.87 million bpd. Refinery throughput for that period was 12.02 million bpd, implying that about 850,000 bpd was heading into storage.
This would suggest that in the first five months of 2019, China increased the rate of flows into inventories by about 360,000 bpd - some 45% of the additional crude imported.
FUEL EXPORTS
Another factor to consider is that exports of refined products increased to 1.44 million bpd in the first five months of the year, up 100,000 bpd from 1.34 million bpd in the same period last year.
Putting the additional storage flows and increased fuel exports together, and the it appears that China's actual growth in crude consumption is far more muted, at around 340,000 bpd in the first half.
This weaker consumption growth fits the narrative that China's economy is struggling for traction amid the hit to manufacturing from the tariffs imposed by the administration of US President Donald Trump.
But does it really matter for crude oil markets? After all, is it important what China does with the crude it imports, or does it just matter that its import volumes are up strongly?
The answer lies in whether one believes that the flows into crude storage facilities are likely to be sustained at a rate of around 1.2 million bpd, or diminish in the second half.
Certainly the flows in the first half would have been boosted by the start up of Hengli Petrochemical Co's new 400,000 bpd refinery, which would have had to build up commercial inventories of several million barrels.
It's also possible that the price of crude will determine how much China buys for strategic storage, with the volumes likely to drop if the price rises beyond what authorities believe is reasonable or sustainable.
For OPEC and its allies in the agreement to lower output in order to bolster prices, the risk for the second half of this year is that if they are too successful, they may crimp demand in their biggest customer - the source of most global oil demand growth.