Refinery run cuts and slowing stockpile drag on China’s crude imports
China’s crude stockpiling pace slowed in 2H May without an uptick in refinery runs, indicating continuous softness in demand ahead.
China’s seaborne crude imports experienced a 6% year-on-year decline, reaching 10.1mbd in May, although this was a slight improvement from April. Low imports align with the peak of spring refinery maintenance work.
Imports from the Middle East (excluding Iran) and West Africa dropped to their lowest levels of the year, falling below figures from the same month last year, as major oil companies significantly cut their baseloads to manage substantial refinery run cuts.
While China’s onshore crude inventories continued to build throughout May, the stockpiling was robust for only four weeks this time, compared to the typical 10-14 weeks in previous years. The stock build rate dropped from 1.2mbd to less than 150kbd in 2H May, as daily crude imports slowed by 1.1mbd in the three consecutive weeks ending on June 2nd, compared to the preceding three weeks.
Based on Vortexa’s calculations using our crude flows and onshore inventory data, China’s implied refinery runs declined for the third straight month to 14.5mbd in May, marking a year-on-year contraction for four consecutive months. This suggests that current run cuts are deeper than the scheduled capacity offline for turnarounds, and post-maintenance crude demand is unlikely to rebound to last year’s levels in the coming months.
China’s implied refinery runs (mbd)
Iranian crude boosts commercial stocks in Northern China
In addition to crude stock builds among the top oil majors’ storage tanks, other commercial storages, particularly those in Northern China, also saw rapid increases since late April.
This coincided with a strong rebound in Iranian crude imports, with May volumes hitting a seven-month high above 1.4mbd. Almost all the incremental barrels went through the ports of Dalian Changxingdao and Yingkou in Liaoning province. These two ports received a total of 400kbd of Iranian crude in April and May, compared to less than 50kbd in the past two years, as the nearby restructured Jincheng refineries are hopeful to regain 300kbd of crude import quotas from July.
Contrasting the rapid build in commercial crude storages linked to the above ports, crude stocks in other coastal areas, including Shandong province where the main buyers of Iranian crude are located, remained flat. This suggests that Shandong teapots are still struggling with bearish refining margins, and their appetite will remain weak in the near term.
China’s crude demand to rebound but limited by bearish margins
Although China’s crude demand is expected to rebound in June as refineries gradually complete their turnarounds and transport fuel demand improves over the summer school holidays and planting/fishing seasons, weak demand from the construction and manufacturing sectors will continue to cap refinery runs below last year’s levels.
Current onshore crude stock, standing at 944mb in aboveground oil storage tanks as of 5 June, equates to 90 days of seaborne crude imports in 2023, indicating that further stockpiling is not urgent.
