Russell: Oil Exporters Focus On Supply, But What Of China Demand?

Russell: Oil Exporters Focus On Supply, But What Of China Demand?
Major oil exporters clearly would like higher crude prices and may even be getting closer to some sort of coordinated action, but they should be careful what they wish for as they may choke off demand growth in top importer China.

Reuters

(The opinions expressed here are those of the author, a columnist for Reuters.)

LAUNCESTON, Australia, Sept 27 (Reuters) - Major oil exporters clearly would like higher crude prices and may even be getting closer to some sort of coordinated action, but they should be careful what they wish for as they may choke off demand growth in top importer China.

On the surface, China's appetite for imported crude has seen robust gains this year, rising 13.5 percent in the first eight months to 250.45 million tonnes, equivalent to about 7.49 million barrels per day (bpd).

August was a particularly strong month, with imports the second highest on record in tonnes and the strongest since April on a barrels per day basis.

But it's likely that the surging imports are a result of lower crude oil prices, rather than because of any sustained lift in actual fuel consumption in the world's second-largest economy.

This assumption can be made because it appears much of the extra crude being imported is going straight into strategic and commercial storage, or being re-exported as refined fuels.

The Chinese have a track record of buying for stockpiles when they deem prices to be cheap, and it appears they have accelerated inventory building this year.

The simplest way to get an idea of how much oil is flowing into storage is to add together China's crude imports and domestic production, and then subtract the amount of oil being processed by refineries.

In the first eight months of this year the total crude available was 11.52 million bpd and refinery runs totalled 10.65 million bpd.

This leaves a gap of 870,000 bpd that has flowed into either commercial or strategic stockpiles.

Comparing this to the first eight months of 2015 shows that total crude available was 10.9 million bpd, while refinery throughput was 10.4 million bpd, a gap of about 500,000 bpd.

This implies that China has been building storage at a pace 370,000 bpd higher in the first eight months of 2016 than it was over the same period in 2015.

Chinese customs data shows that imports in the first eight months of the year were about 595,000 bpd higher than the same period last year.

If it can be assumed that inventories have been rising by 370,000 bpd more than they were in the first eight months of 2015, it means that only an extra 225,000 bpd has been imported and not put in storage.


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R.Kleeman | Sep. 27, 2016
What about the 10% decline rate of their aging oilfields?


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