China imported a record-high volume of crude oil in October, beating the previous all-time high set in April this year. The oil market, gripped by a strong bearish sentiment last week, largely ignored the Chinese data.
Crude oil imports at the world’s top importer will continue to grow, but last month’s record was determined not only by fundamentals—it was influenced by one-off shorter-term factors that boosted oil intake, according to Reuters columnist Clyde Russell.
Chinese crude oil imports continue to be propped up by economic growth at over 6 percent, which, however, has slowed down in recent months with the U.S.-China trade war. Other long-term factors driving oil demand growth include declining domestic crude oil production with mature fields depleting and the building up of strategic petroleum reserves.
Yet, in October two short-term factors also contributed to the record Chinese crude oil imports—the U.S. sanctions on Iran and the approaching expiry date for China’s smaller independent refiners to use up their 2018 oil import quotas. Various estimates show that China significantly boosted its crude oil imports from Iran last month, just before the U.S. sanctions snapped back on November 5 and before the announcement that waivers were granted, and before independent refiners—the so-called teapots—likely imported a record high volume of crude oil in October to fully use their quotas for this year.
So, going forward, China’s total crude oil imports may not continue to break record highs, as demand from teapots will likely ease, and as there won’t be such a rush for Iranian oil, all the more so that China was among the eight countries granted waivers by the U.S. to continue importing Iran’s oil, at least until May next year.
Among the factors underpinning China’s continued and long-term oil demand growth are declining domestic production and an expanding economy, although GDP is now rising at a slower pace than earlier this year.
China’s crude oil production in January-September dropped by 1.9 percent compared to the same period a year earlier, according to data from the National Bureau of Statistics of China. In September, crude oil production in China fell 2.4 percent compared to September 2017.
China’s economy, for its part, expanded by 6.7 percent annually at comparable prices between January and September, the statistics data showed. However, the pace of growth has been slowing this year, from 6.8 percent in Q1, to 6.7 percent in Q2, and to 6.5 percent in Q3, with third-quarter growth at its slowest expansion rate since the peak of the global financial crisis in 2009.
China has started to introduce fiscal stimulus to prop up its economy. The stimulus could boost China’s imports in all sectors in 2019, according to ING, which sees China’s exports growth in October as a possible sign that Chinese exporters are concerned that more U.S. tariffs are coming next year. ING doesn’t think that the Trump-Xi meeting at the G20 summit in Argentina later this month will yield positive results, Iris Pang, Economist, Greater China, at ING, wrote in an analysis last week.
Factors driving the record-high Chinese oil imports in October included record purchases from the teapots and high imports from Iran. Independent refiners imported nearly 2 million bpd of China’s total 9.61 million bpd imports in October, according to Refinitiv Oil Research and Forecasts.
Refinitiv data also show that China’s oil imports from Iran jumped to 654,000 bpd last month from 458,000 bpd in September.
According to S&P Global Platts trade flow data, Iran’s oil shipments to China between October 1 and 21 averaged 800,000 bpd, up from around 600,000 bpd average for September. About half of China’s crude oil and condensate imports from Iran in October—around 400,000 bpd—were bound for a storage hub in Dalian in northeastern China, according to Platts sources and shipping data. The National Iranian Oil Company (NIOC) has reportedly leased some storage capacity at Dalian.
Iranian oil flows may become even trickier to track with sanctions now in force and Iran reportedly switching off transponders on board ships. So data may become less and less reliable as to how much Iranian oil Tehran’s top oil customer—China—is importing.
Economic growth and domestic oil production decline will continue to drive Chinese crude imports, but it could be a while until China beats the October record.
By Tsvetana Paraskova for Oilprice.com
