China Ramps Up Crude Oil Reserves, Import Slowdown Expected with High Prices
According to Reuters, China increased its crude oil inventories in the first two months of the year, giving refiners flexibility to cut imports if the crude oil prices rise.
The increase in crude stockpiles challenge the beliefs of growing oil demand, as it suggests underutilization of available resources.
Official data indicates 570,000 barrels per day (bpd) were added to the Chinese Crude Oil inventories during the first two months of this year. Although China did not disclose exact stockpile volumes, but estimates show a surplus of 570,000 bpd for storage after processing 14.45 million bpd.
Despite a 5.1% increase in China’s crude oil imports compared to last year, the daily increase was only 3.3% factoring in leap year. This undermines the narrative of strong fuel demand in China.
Impact to Crude Oil Prices
When analysing the cargoes that arrived in January and February, it is crucial to consider the backdrop of crude oil prices. Reuters reported that most of these shipments would have been arranged approximately two months earlier, during a period when oil prices were on a downward trend.
Global benchmark Brent Crude Futures, for instance, hit a six-month low of $72.29 a barrel on 13th December last year, following a decline from the 2023 peak of $97.69 on 29th September. This suggests that Chinese refiners were procuring oil for January and February delivery during a period of falling prices, incentivizing them to purchase more than initially planned to bolster their crude oil inventories.
Subsequently, crude prices began to climb, driven by geopolitical tensions in the Middle East and efforts by the OPEC+ group to limit output. Brent Crude Oil prices surged to $87.70 a barrel on 19th March this year, its highest level in almost five months, and has remained above $80 since 9th February.
While the increase in Brent Crude prices is not expected to significantly impact China's March imports, forecasted to be robust at 11.22 million bpd by LSEG Oil Research, the combination of higher prices and inventory builds in the initial two months may prompt Chinese refiners to scale back imports from the second quarter onwards.
Recent trends in China's crude imports and stockpiling indicate that refiners have become more sensitive to price fluctuations and are willing to adjust their inventory levels to manage the impact of price movements.
Both OPEC+ and Chinese refiners share an interest in achieving price stability and ensuring a well-supplied crude oil market. However, they may differ in their perceptions of the ideal price level, with OPEC+ likely favoring around $90 a barrel, while China may view a price closer to $75 as more suitable at present.
Until this disparity in price expectations narrows, the current market dynamic of China increasing crude stockpiles during price declines and reducing imports when prices rise is expected to persist.
See Also:
4 Reasons Why Brent Crude Oil Prices Are Going Up
Brent Crude Oil Futures Prices Fall on China & US Worries
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INE Crude Oil Futures Contract Specifications
The INE Crude Oil Futures Contracts has the following specifications:
The contract size for INE Crude Futures Contract has a minimum price fluctuation of 0.1 Yuan per barrel.
The last trading day is the last trading day of the month prior to the delivery month.
The listed contracts are monthly contracts of recent twelve consecutive months followed by eight quarterly contracts.
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