(The opinions expressed here are those of the author, a columnist for Reuters.)


LAUNCESTON, Australia - A rebound in China's crude oil processing in October coupled with a sharp drop in imports of the fuel means the world's biggest crude buyer is back to drawing down inventories.

China's refineries used 58.4 million tonnes of crude in October, equivalent to about 13.75 million barrels per day (bpd), up from the 16-month low of 13.64 million bpd in September. 

But the total volume of crude available to refineries from both imports and domestic output was just 54.63 million tonnes, or about 12.86 million bpd.

This means that refineries processed about 890,000 bpd more crude than what was available from imports and domestic production, meaning that they had to draw down on inventories.

China doesn't disclose the volumes of crude flowing into or out of strategic and commercial stockpiles. But an estimate can be made by deducting the total amount of crude available from imports and domestic output from the amount of crude processed.

In the past seven months, China's refineries have processed more crude than what was available on five occasions.

However, strong stockpile builds in the first quarter of the 2021 mean that for the first 10 months overall, China has added about 150,000 bpd to its commercial or strategic storages.

But even this modest build is well below what has been the pattern of the last several years, as China has consistently imported crude well beyond its consumption as it built up its strategic petroleum reserve (SPR).

For example, in 2020, China's imports and domestic output combined were some 1.26 million bpd more than refinery throughput.

China's appetite for crude oil imports has been a major driver of demand growth for the fuel in recent years, but it's likely that 2021 will see that dynamic come to a halt.

Imports for the first 10 months of the year were 10.21 million bpd, down 7.2% on the same period in 2020, according to official customs data.

October imports were just 8.9 million bpd, the lowest since September 2018.

There are several factors behind the weakness in imports, with some of them being transitory, such as a lack of import quotas for independent refiners and a wider power shortage that led to energy-intensive industries, such as oil refining, scaling back output in order to conserve electricity.

China's crude imports are likely to stage a recovery in November and December as refiners work to ensure adequate fuel supplies for the northern winter.

However, there does appear to be a structural shift at work in China's crude imports, namely the gradual easing of buying to fill the SPR.



Beijing doesn't disclose the amount of crude in the SPR, but officials indicated last year that it was close to being filled and that China was nearing holding 90 days of import cover, which is the standard recommended by the International Energy Agency.

China has also indicated a willingness to tap the SPR to supply local refiners if it deems that international crude prices have risen too far, too fast.

The sale of crude from the SPR was announced in September and while the volumes offered were relatively small, they may have been a factor in the lower imports in October.

The global oil market had grown accustomed to China buying substantially more crude than it was consuming, and that may change in coming years.

It's likely that China's crude imports will become more closely aligned to its domestic fuel demand.

The unknown factor is how much refined products will be authorised by Beijing for export, and given this is effectively a political decision, it's harder to predict.

There is substantial spare capacity in China's refining system, meaning they have the capacity to boost exports, but there are also concerns over the environmental and power-demand aspects of boosting refinery throughput.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(Editing by Sam Holmes) ((clyde.russell@thomsonreuters.com)(+61 437 622 448)(Reuters Messaging: clyde.russell.thomsonreuters.com@reuters.net))