LAUNCESTON, Australia (Reuters) - The rebound in China’s crude oil refinery processing and record imports of the fuel in May would seem to be bullish indicators that the world’s second-largest economy is recovering strongly after the hit from the coronavirus lockdowns.
For sure, the numbers are robust. But there are some other factors within the data that give rise to caution against becoming too optimistic about the real strength of the crude oil sector in China.
The two main factors worth looking at are the amount of crude flowing into commercial and strategic storage tanks, and the amount of crude that is ultimately being exported back out of China in the form of refined fuels.
China doesn’t release official data on flows into strategic and commercial stockpiles. But an estimate can be made by subtracting the amount of crude processed by refineries from the total volume of oil available from both imports and domestic output.
Imports in May were 11.296 million barrels per day (bpd), while domestic output was 3.88 million bpd, giving a total amount of 15.18 million bpd available.
Refinery throughput was 13.69 million bpd, up 8.2% from May last year and the fourth-highest on record on a barrels per day basis.
Subtracting refinery throughput from total available crude leaves a gap of 1.49 million bpd, presumably going into commercial storage or the strategic petroleum reserve in May.
The May flows into storage continued a trend so far this year of rising inventory builds: some 1.88 million bpd will have gone into tanks in the first five months of the year, according to calculations based on official data of crude imports and domestic output, and refinery processing.
To put that storage number into perspective, it’s about 300,000 bpd more than Britain’s total pre-coronavirus crude oil demand.
The flows into storage in the first five months of 2019 were 1.21 million bpd. That means they have jumped by about 670,000 bpd in the same period this year, as China took advantage of the collapse in prices earlier this year amid a producer price war and the worsening pandemic.
The increase in storage actually exceeds the rise in imports in the first five months, up by about 620,000 bpd.
This shows that actual consumption of fuels in China has been soft in 2020 - unsurprising given the hit to demand in February and March, when much of the country was under some form of economic lockdown in a bid to contain the coronavirus.
While the rate of storage did slow in May compared to the previous four months, it was still higher than in the first five months of 2019, perhaps illustrating that consumption may not be quite as strong as suggested by strong headline numbers for crude imports and refinery processing.
The other factor worth looking at to get a fuller picture of China’s crude oil demand is exports of refined fuels.
These plunged in May to 3.89 million tonnes, equivalent to 1 million bpd using the BP Plc conversion factor of eight barrels of product per tonne.
This was down from 2.13 million bpd in April, and likely a reflection of weak fuel demand across Asia as much of the region imposed lockdowns to contain the pandemic.
However, for the first five months of the year fuel exports jumped 10.4% to 1.57 million bpd, a gain of 140,000 bpd over the corresponding period in 2019.
Overall, China has stored more crude and exported more refined products in the first five months of 2020 compared with the same period last year. That means actual domestic consumption has been weaker.
Given the impact of coronavirus lockdowns, that’s not surprising. But it does mean that claims that China’s crude oil and fuel consumption is already showing strong recovery from the coronavirus should be treated with a grain of caution.
The opinions expressed here are those of the author, a columnist for Reuters.
Editing by Kenneth Maxwell