Early this month, Reuters data proved that China was the world’s largest importer of crude oil ahead of the US.
Figures showed that for the first time, China averaged 8.55 mill barrels per day of crude oil imports in the first half of 2017, compared with 8.12 mill barrels per day imported by the US.
This trend looks set to continue as China develops its refining industry and builds strategic petroleum reserves. However, other factors play a role, Gibson Shipbrokers said in a report.
First, one of the biggest differences between China and the US is domestic oil production. China’s crude production has been in gradual decline. According to data provided by Reuters, domestic production fell by 5.1% in the first six months of 2017, averaging 3.89 mill barrels per.
This is in contrast to growing US production on the back of the revitalised shale industry in recent months and highlights a growing trend in China of increased crude imports to replace declining domestic production.
Perhaps more significantly, another factor driving imports has been the continuing effort to build strategic petroleum reserves (SPR). Finding accurate data on SPR levels increase can be difficult. However, by adding crude imports to domestic production, minus refinery throughput, an idea of surplus oil used to build SPR can be identified.
According to data from Reuters, when comparing the first half of 2016 to 2017, the increase between available crude and refinery throughput was 510,000 barrels per day. Not all of this would necessarily go into filling the SPR, however, a large percentage of overall crude import growth can potentially be attributed to the SPR build, Gibson said.
Data released for July, shows refinery throughput was the lowest since September, 2016. This slowdown, coupled with rising oil demand further highlights the role of SPR builds in crude demand and invariably raises the question of how long can this continue.
It is assumed that China will continue to build tits SPR for years. The IEA has highlighted 2020 as a tentative completion date, with 182 mill barrels of storage space yet to be commissioned - according to the latest reports. However, unless further investment is made into building new storage facilities it is possible to assume that this artificial source of import demand will gradually decline.
According to a recent Sinopec presentation, China plans to add 2.5 mill barrels per day of refining capacity by 2020, supporting growth in Chinese oil imports into the future. In recent years, China’s refining capacity expansion has pressured regional refining margins, as the country’s refined product exports rise.
Politics may impact this in the future, but expanding capacity does look set to place China in a more dominant position within the refined products market.
Evidently, China will continue to have an ever greater role in the global oil market and continue to cement its position as the world’s largest crude importer. Due to declining domestic production and refinery expansions, this should prove positive to tanker demand in years to come, Gibson concluded.