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China may import more crude oil as august inventories drop sharply

China may import more crude oil as august inventories drop sharply Source:
Date: 29-09-2012
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China may import more crude or refined products in the next few months, after official figures showed a sharp drop in oil and fuel inventories in August.

China's commercial crude inventories fell 2.5 per cent by the end of August from a month earlier, and those of refined products by 10.9 per cent, according to China Oil, Gas and Petrochemicals, a publication of the official Xinhua agency. The draw in crude and products isn't surprising, given the large decline in oil imports in August and the increase in refinery throughput. Crude imports were 18.4 million tonne in August, equivalent to 4.33 million barrels per day (bpd), and the weakest for 22 months.

The first five months of the year saw stronger-than-expected crude imports, averaging 5.68 million bpd. The three months since then have seen the average slump to 4.91 million bpd, as China's demand growth eased and strategic and commercial stock-building tailed off.
It's likely that at least 600,000 bpd of imports in the first five months went into strategic and commercial inventories as China fretted over the potential threat to supplies from Iran as Western powers ramped up sanctions against Tehran's nuclear programme. With the easing of supply concerns, it was always likely that China would cut its imports to be more in line with demand. The weak August outcome was probably too much of a cut, which is likely to be reversed in coming months, especially if refiners ramp up production. The strong draw in commercial product stocks alone is enough to suggest that China will need to produce, or import, more fuels in coming months.

Diesel inventories fell 14.9 per cent in August, while gasoline dropped 6.9 per cent and kerosene by 2.8 per cent. If China needs to replenish stocks, and assuming a slightly stronger outlook for industrial production in the fourth quarter as some of the government's stimulus kicks in, the question then becomes whether refiners will choose to boost runs or import refined products.

So far this year growth in refinery throughput has been modest, notwithstanding the 2.6 per cent jump in the daily run rate to 8.89 million bpd in August from the same month last year. For the first eight months of the year, runs are up only 1.6 per cent and China's refineries will have about 11.6 million bpd of capacity by the end of 2012, up from 10.8 million at the end of last year. That means that refinery utilisation is now around 77 to 80 per cent, depending on just how much of the new capacity expected this year has been commissioned already.
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