China's available crude was almost in balance with refinery processing in November, with a statistically insignificant 20,000 barrels per day (bpd) being added to 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 amount of crude processed from the total of crude available from imports and domestic output.
The total volume of crude available to refiners in November was 14.51 million bpd, consisting of imports of 10.33 million bpd and domestic production of 4.18 million bpd.
Refinery throughput was 14.48 million bpd, down from 15.05 million bpd in October and the lowest daily level since the January-February period in 2023.
Subtracting the refinery processing from the total available crude leaves a gap of just 20,000 bpd of crude that went into storage tanks, down from the 560,000 bpd that went to stockpiles in October.
However, October was something of an aberration as China's flows of crude into storage slowed sharply over the second half of 2023.
In the five months from July to November a total of about 240,000 bpd was added to inventories.
In two of those months, July and September, China's refineries actually processed more crude than what was available from imports and domestic output, thereby drawing on inventories.
The weak storage flows in the July to November period are in stark contrast to the robust additions in the first half of the year, when 950,000 bpd was added to stockpiles.
This means that flows into storage tanks dropped by 710,000 bpd in the July to November period from what was added in the first six months of 2023.
The sharp slowdown is a reflection of lower imports, rather than a drop in refinery processing.
China's crude imports have eased in the second half, most likely as a result of the higher global prices for oil, largely sparked by the decision in late June by OPEC+ leaders Saudi Arabia and Russia to jointly cut output by a further 1.3 million bpd.
That move sent benchmark Brent crude futures from a low of $71.57 a barrel on June 28 to a high for 2023 of $97.69 on Sept. 28.
Given the lag between when cargoes are arranged and physically delivered, it was always likely that China's crude imports would slow, and they did from September onwards.
However, the price of crude has since eased, partly as a result of concerns over global economic growth and partly because Chinese imports did not match the robust demand forecasts provided by the International Energy Agency, the Organization of the Petroleum Exporting Countries and other analysts.
IMPORT REBOUND?
Brent ended last year at $77.04 a barrel and has continued to drift lower in the new year, finishing at $75.89 on Jan. 2.
This makes it more likely that Chinese refiners will buy more crude and build inventories again.
There may be some early evidence of this as Refinitiv Oil Research expects China's December imports to rise to 11.85 million bpd from November's customs figure of 10.33 million bpd.
December-arriving cargoes would have largely been secured in October, at a time when Brent prices were falling sharply, from the September peak to a low in October of $83.44 a barrel.
However, it's likely that oil prices will have to remain subdued for China's refiners to ramp up imports in the first half of 2024.
Other factors will have to be supportive as well, such as whether domestic fuel consumption will increase on the back of a rebound in construction and increased local and international travel.
Official policy with regards to exports of refined fuels will also be key, and initial indications are that 2024 will be largely a repeat of 2023.
Exports of refined fuels rose 26.5% in the first 11 months of 2023 compared to the same period a year earlier as refiners sought to use higher quotas to take advantage of strong margins for some products, especially diesel.
The first batch of quotas for 2024 were announced on Dec. 29, with Beijing allocating 19 million metric tons, a volume unchanged from the first tranche of 2023.
It's likely that these quotas will be used rapidly, given a lack of allocations toward the end of 2023 prevented refiners from exporting as much as they probably would have liked.
