China’s Oil Imports: A Mixed Bag of Rising Demand and Weakening Appetite

Crude oil imports into China are poised to rebound in the final quarter of the year, but the uptick is unlikely to reach pre-war levels, according to energy consultancies cited by Bloomberg. Refiners are scrambling to secure new supplies, driven by a rising demand for oil that is, however, being dampened by high prices and a preference for alternative crude types.

Analysts from Rystad Energy, Energy Aspects, and FGE NexantECA predict that oil purchases by Chinese refiners will increase towards 10 million barrels daily, but may not reach that mark until the end of the year. In the fourth quarter, import rates could reach 9.9 million barrels daily, significantly lower than last year’s peaks of between 12 and 13 million barrels daily.

The main driver behind the expected increase in imports is the need for Chinese refiners to find alternative crude supplies due to the prolonged war and disrupted Middle East flows. Most Chinese refineries require medium sour crude, a type of crude that is largely sourced from the Middle East. However, with export levels from the region severely lower than at the start of the year, Chinese refiners are being forced to look elsewhere, including Africa and South America, for their crude needs.

Energy Aspects analyst Jianan Sun noted that high crude prices are preventing larger demand drivers like stockpiling from taking place. ‘With the prolonged war and Middle East flows still disrupted, high crude prices are preventing larger demand drivers like stockpiling from taking place,’ Sun said, as quoted by Bloomberg.

Chinese buyers are also replacing Iranian barrels frozen by the U.S. naval blockade with Russian barrels. According to new Kpler data, China is on track to import Russian crude at a rate of 1.25 million barrels daily, a significant volume that would be down from 1.42 million barrels daily in July. Iranian oil imports, on the other hand, are expected to slump to an estimated 340,000 barrels daily for August.

The shift towards Russian crude is likely driven by the availability of supplies and the desire to reduce dependence on Iranian oil. However, the decision also reflects the challenging market conditions, where high prices are making it difficult for refiners to secure the crude they need. The situation is further complicated by the fact that China still has quite a bit of oil in storage after building inventories of over 1 billion barrels over the last two years.

Prices are, therefore, a major factor in the current state of China’s oil imports. Brent crude is trading above $93 per barrel, and the OPEC basket is at $91.27. This has weakened appetite for oil, particularly given the existing stockpiles and the need for Chinese refiners to find alternative crude supplies.

In conclusion, while China’s oil imports are set to rebound in the final quarter of the year, the uptick is unlikely to reach pre-war levels. Refiners are facing a challenging market environment, characterized by high prices, disrupted Middle East flows, and a preference for alternative crude types. The shift towards Russian crude and the reliance on alternative supplies will continue to shape the dynamics of China’s oil imports in the coming months.

Bullet points summarizing the article:

• Crude oil imports into China are set to rise by about 1.2 million barrels per day in the final quarter of the year.
• Refiners are scrambling to secure new supplies, driven by a rising demand for oil.
• High prices and a preference for alternative crude types are dampening appetite for oil.
• Chinese buyers are replacing Iranian barrels with Russian barrels.
• China still has quite a bit of oil in storage after building inventories of over 1 billion barrels over the last two years.