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China Takes Advantage of Lower Oil Prices to Build Inventories

China is taking advantage of the slide in oil prices, which began in October, to ramp up its stockpiling of cheaper crude.
In December alone, China is estimated to have sharply boosted the volume of crude going to storage for the highest rate of stockpiling in six months, according to estimates by Reuters columnist Clyde Russell.
China does not report commercial or strategic inventories, so analysts are trying to estimate the volume of stockpiling by deducting the amount of processed crude from all available crude coming from imports and domestic crude production.
Per Russell’s estimates, China added in December the highest flows to storage since June 2023. The rate of stockpiling last month, estimated at around 1.39 million barrels per day (bpd), jumped from an estimated crude inventory build-up of about 20,000 bpd in November.
Considering the time lag of around two months between crude purchases and nominations and the arrival of the crude in China, it could be concluded that Chinese refiners have continued to buy more oil when prices were falling. The imports and very low flows to stockpiles in November, for example, were likely the result of lower volumes of crude purchased in September, when oil hit its highest level for 2023 at over $95 per barrel Brent.
With the drop in prices in the fourth quarter of 2023, China resumed the higher import levels and higher inventory builds, as evidenced in Russell’s estimates for December.  
In the full-year 2023, flows to Chinese crude inventories are estimated at around 760,000 bpd, up from 740,000 bpd for the previous year.
China imported a record-high volume of crude oil last year, beating the previous annual record from 2020, as fuel demand rebounded after the Covid restrictions were abandoned in early 2023.
Chinese crude oil imports jumped by 11% year-on-year to 11.28 million bpd in 2023, according to data from the General Administration of Customs. The 2023 crude imports topped the previous record level of 10.81 million bpd from 2020 when China took advantage of the plunging oil prices to import large volumes of cheap crude.
China’s crude oil imports in December 2023 alone rebounded from the low levels in November and averaged 11.39 million bpd. That was much higher than 10.33 million bpd of crude imports in November, when Chinese crude oil intake dropped by 9.2% year-over-year, marking the first annual decline in crude arrivals since April 2023.
Imports in December accelerated as prices slid, and as a result, the rate of crude stockpiling also accelerated. China’s crude oil purchases and estimated inventory builds had slowed significantly in October and November in response to the 2023-high oil prices hit at the end of September.
The high levels of the December stock builds are likely to continue early this year as demand and oversupply concerns keep oil prices below $80 per barrel.  
With oil prices now down by around 20% from the 2023 high of $98 per barrel, Chinese refiners could have more incentives to import larger volumes of crude at the start of this year, especially at prices around $75 a barrel.
China’s refiners are looking to stock up on below-$80 crude early in the year in anticipation of a surge in fuel demand in the second half, analysts and trading sources told Reuters this week.
“They snap oil from all over the world, except for the U.S. due to high freight rates,” an oil trader at a Chinese refiner told Reuters.
New crude import and fuel export quotas allocated to refiners would also incentivize more crude imports, refinery throughput, and fuel exports to the rest of Asia early this year, analysts say.
China has also just allocated a massive batch of crude oil import quotas to refiners, raising the allowances from early last year by around 60% and allocating full-year quotas to some. The early allocation of a large volume of import allowances would help refiners better plan their crude purchases in 2024, according to analysts.   
By Tsvetana Paraskova for Oilprice.com

Jan 23, 2024 12:25
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