As Chinese refinery runs hit a 15-month low, China back to stockpiling crude

China is estimated to have sent around 760,000 barrels per day (bpd) of crude oil to its strategic and commercial reserves in August, as refinery throughput in the world’s top oil importer slumped to the lowest in 15 months.

Last month, China reversed four months of estimated draws from its inventories, mostly as a result of the low refinery volumes, according to estimates of Reuters columnist Clyde Russell based on official Chinese data.

Refinery runs in China fell to 13.74 million bpd in August – the lowest in 15 months, on the back of a sizeable cut in fuel export quotas and the latest wave of Covid-19. The decline in refinery run rates came amid a government crackdown on independent refiners—the so-called teapots. These teapots have come to account for a considerable portion of oil imports and fuel exports, which have contributed to a regional fuel glut that pushed down refiners’ margins.

China is not forthcoming in reporting strategic reserves of anything, including crude oil. So, in most cases, analysts are playing a game of guesstimates, calculations, and conclusions from past behavior to try to measure Chinese stockpiles of strategic commodities.

Reuters’s Russell has estimated that since China’s crude availability averaged 14.5 million bpd in August—including imports of 10.49 million bpd and domestic crude production of 4.01 million bpd—and refinery runs were 13.74 million bpd, this left 760,000 bpd that have likely flown into storage, either strategic or commercial. 

The estimated August build in Chinese inventories comes just as the world’s largest crude importer says that it would auction crude oil from its strategic reserves, aiming to ease oil prices and inflationary pressure. China will hold the first auction of crude from its strategic reserves on 24 September this year, launching the unprecedented sale of oil from the national stockpiles it announced last week in a bid to “alleviate raw material price pressures.”

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