China holds the key to 2024 global oil demand growth
Despite an increase in China’s crude oil imports in the first two months of 2024, it’s too early to say how the purchases of the world’s top crude importer will impact global oil demand and prices this year.
One thing is certain—the impact, in either direction, will be felt across the market.
Chinese imports rose in January and February this year compared to the same two months of last year, according to official Chinese data released this week. But the base for comparison with early 2023 is low and the month-on-month trend compared to December 2023 is for lower imports.
Time will tell how soon the Chinese imports will reverse the trend, and whether international crude oil prices and China’s crude import quotas and fuel export quotas will have more weight in refiners’ purchases compared to underlying domestic oil demand in China.
At the start of 2024, the crude imports showed a mixed bag of trends.
Chinese crude oil imports jumped by 5.1% in January and February compared to the same two months last year, government data showed on Thursday, as fuel demand rose during the Lunar New Year holiday last month.
China saw oil cargo arrivals rise to a total of 10.74 million barrels per day (bpd) in the first two months of 2024, compared to about 10.4 million bpd in January-February 2023, according to Reuters’ calculations based on data in tons reported by the Chinese General Administration of Customs.
China’s customs office does not report separate data for January and February to avoid distortion due to the Lunar New Year holiday, which typically begins at the end of January or early February. This year, the holiday period fell in the middle of February.
However, on a per-day basis to account for the February 29 leap day, the increase in the combined January-February crude imports is just 3.3% compared to the same months of 2023, Reuters’ columnist Clyde Russell notes.
Moreover, the 10.74 million bpd imports in January and February were significantly lower than the 11.39 million bpd crude arrivals in December 2023.
The high imports in the last month of last year were partly driven by the slump in international oil prices in the fourth quarter, down from a 2023 high of over $95 a barrel in September.
Time and again, Chinese refiners have shown in recent years that they are willing to step up purchases when prices are relatively low and hold back the buying spree when oil climbs above $80 per barrel. Even if domestic and fuel export demand is not too high, China is using the cheaper crude it has imported to boost stockpiles.
Despite the annual increase in the January-February crude imports, “the overall buying trend remains soft as the purchases were lower when compared to imports of 11.39MMbbls/d in December,” ING commodity strategists Warren Patterson and Ewa Manthey said, commenting on the official Chinese crude import data.
“China has been slowing its overseas purchases primarily due to slowing demand from refineries, weak economic indicators, and higher inventories,” they added.
As prices have recently moved above $80 a barrel again, and OPEC+ signaled with the rollover of the cuts it would be looking to tighten the market in the second quarter, Chinese crude imports in April and May could remain soft as they would have been contracted at around this time and at about the current prices.
More fuel export quotas for Chinese refiners could incentivize more refinery throughput and product exports after very weak January and February, in which – due to a lack of quotas – China’s exports of petroleum products slumped by 30.6% year-over-year to about 1.18 million bpd.
A decisive rebound in China’s economy will help lift oil demand and imports this year, but if brighter economic prospects – also outside China – lead to higher oil prices, Chinese refiners may opt to dip into their inventories and slow opportunistic crude purchases.
