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

LAUNCESTON, Australia - China's crude oil stockpile dropped sharply in September as lower imports and higher refinery processing cut the surplus that was available for storage.

China's surplus of crude stood at 570,000 barrels per day (bpd) in September, down from 1.01 million bpd in August, according to calculations based on official data.

The decline in crude imports and the increase in refinery throughput are an example of how China smoothes out the volatility in oil prices.

Imports dropped in September to 11.5 million bpd, the lowest level since January, as refiners trimmed purchases after prices surged in June during the brief military conflict between Israel and Iran.

Cargoes arriving in September would largely have been arranged at a time when crude prices were elevated, with benchmark Brent futures hitting a six-month high of $81.40 a barrel on June 23.

China does not disclose the volumes of crude flowing into or out of its strategic and commercial stockpiles, but an estimate can be made by deducting the amount of oil processed from the total crude available from imports and domestic output.

September's domestic oil output was 4.32 million bpd, according to official data released on Monday, giving a total available to refiners from imports and local production of 15.82 million bpd.

Refiners processed 15.25 million bpd in September, up from 14.94 million bpd in August, according to data from the National Bureau of Statistics.

This means that there was a surplus of 570,000 bpd of crude in September.

It is worth noting that not all of the surplus crude was likely to have been added to storage, with some being processed in plants not captured by the official data.

But even allowing for gaps in the official data, it is clear that from March onwards, China was importing crude at a far higher rate than it needed to meet domestic fuel demand.

For the first nine months of the year, the average volume of surplus crude in China was 930,000 bpd, with the lower surplus in September causing the year-to-date number to drop from 990,000 bpd for the eight months to August.

The surplus has been built up after refiners made a rare draw on inventories in January and February, when processing rates exceeded available crude by about 30,000 bpd. This was the first time since September 2023 that throughput exceeded the amount of crude from imports and domestic output.

The draw on inventories at the start of 2025 came amid rising oil prices, with Brent futures reaching their highest point so far this year of $82.63 a barrel on January 15, having risen steadily from levels around $70 in early December.

MORE STORAGE FLOWS

The question for the market is whether China will accelerate its crude stockpiling in light of the declining trend in oil prices.

Brent crude dropped to a six-month low of $60.14 a barrel on October 17 and was trading at $61.12 in Asia on Monday.

That price is likely low enough to encourage Chinese refiners to continue building their inventories.

But there are other factors at work, including mounting pressure on China and India to substantially reduce the volume of Russian crude oil they buy as part of Western efforts to put pressure on Moscow to negotiate an end to the war in Ukraine.

It is likely that China could source sufficient crude to keep stockpiling from other suppliers even if it does trim imports from Russia.

Prices will be key to what happens next.

If oil prices remain in the current downtrend as the eight members of OPEC+ end the bulk of their voluntary production cuts, then history suggests Chinese refiners will move to absorb most of any available surplus.

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The views expressed here are those of the author, a columnist for Reuters.

(Written by Clyde Russell; Editing by Thomas Derpinghaus.)