China's oil demand recovers as crude imports climb to a record in May

China’s crude imports soared to an all-time high last month, capping an astounding rebound in oil demand after the nation’s economy was flattened by lockdowns to contain the coronavirus pandemic. Imports surged to 47.97 million tonnes in May, or 11.34 million barrels per day, according to customs data on Sunday. That is a 15 per cent jump from April and 160,000 bpd more than the previous record set in November. The figure underlines how complete the demand recovery has been in the world’s largest oil importer, even as other countries are still struggling with the impact of bruising lockdowns on their economies. It also suggests that China has been taking advantage of the collapse in prices this year to fill its strategic reserves on the cheap. “Much of it is likely opportunistic buying to capitalise on low crude costs,” said Michal Meidan, head of China research at the Oxford Institute for Energy Studies. “Demand for products is recovering, but there is still plenty of crude and product in tanks.” The surge was predicted by ship-tracking data, which showed tanker arrivals rising to pre-virus levels, as cargoes bought during oil’s crash into the $20s began to land. At least two dozen tankers on China’s east coast were awaiting to discharge earlier this month. Shipping data indicates that China could import more than 14 million bpd in June, according to Sean Tan, an analyst with commodity research firm Kpler. About 190 oil supertankers are expected to arrive this month, he said. “The strong increase in China’s imports will have supported the tightening of the seaborne oil market, and hence oil prices,” Morgan Stanley analysts including Martijn Rats said in a report. Fuel demand has largely rebounded to pre-virus levels, with gasoline and diesel leading the recovery as commuters prefer the safety of their own cars over public transport. Rush-hour traffic in many Chinese cities has surged in the last couple of weeks, in many cases running either at or even above year-ago levels, according to data from navigation company TomTom International. Jet fuel remains the laggard, as international travel remains at just a fraction of earlier levels. The rise in consumption has prompted processors to crank up run rates, with independent refiners in Shandong province operating near record levels since the beginning of May. Much of the surge in crude purchases is from these kind of plants as they try to use up import licenses, Ms Meidan said. The collapse in Chinese consumption in early February marked the beginning of one of the darkest chapters in the history of the oil industry, and foreshadowed the damage to the global economy wrought by the virus.As such, China’s recovery remains on an unsteady footing as its export-reliant factories wait for other economies to return to health. And with refinery maintenance season in China about to begin, there’s a risk that buyers have been front-loading purchases and that imports will slow in the second half of the year, Ms Meidan said. Still, energy demand is recovering as more businesses and schools reopen and the government begins to pump billions of dollars in stimulus into the economy. A private gauge of activity in the nation’s services sector rebounded sharply in May to its highest in a decade, underscoring the momentum behind the economic recovery. China's trade surplus has also surged to a record in May as exports fell less than expected, helped by an increase in medical-related sales, and imports slumped along with commodity prices. Exports decreased 3.3 per cent in dollar terms from a year earlier, beating economists' estimates, while imports plunged 16.7 per cent. That resulted in a trade surplus of $62.93 billion (230.95bn). While imports of commodities have risen, exports, in the meantime, have come off their lows, helped in part by sales of masks and other medical supplies as countries around the world battle to stem the spread of the coronavirus. “The recent acceleration in export growth of anti-epidemic materials contributed considerably to China’s exports,” CICC analyst Liu Liu wrote in a note. “China’s full-year export growth in 2020 may be better than our previous expectations.” Net exports of goods and services in the second quarter will increase substantially from a year earlier, swinging to a “large positive contribution” to GDP growth after dragging in the first quarter. Exports of medical devices increased 88.5 per cent, according to CICC. Cheaper Imports While China increased commodities imports, the average price has fallen, according to a statement from the customs bureau. The average purchase price of crude oil slumped 21.2 per cent in yuan terms in the first five months of the year, although the volume of purchases rose 5.2 per cent, it said. China’s economy continued its slow recovery from the coronavirus slump in May, the earliest indicators showed, with domestic demand gaining momentum while globally it remained sluggish. But the rising risk of an escalation in US-China tensions threatens the outlook for China’s foreign trade. Exports to the US slipped 1.2 per cent from a year earlier, while those to India slumped 51 per cent and Brazil’s were down 26 per cent amid those countries’ battle to stem the spread of Covid-19. Imports slumped 13.5 per cent from the US, 43.5 per cent from Hong Kong and 29 per cent from the European Union. Exports remained resilient as industrial output continued to recover to normal levels and manufacturers benefit from the shift in supply chains as industrial hubs in the EU and US were shut down during the time, according to Rajiv Biswas, Apac chief economist at IHS Markit in Singapore. “With lockdowns ending across the EU and US, new orders for Chinese exports should gradually recover during the third and fourth quarters as Christmas season supports a rebound in new orders,” he said.

China's oil demand recovers as crude imports climb to a record in May

Imports surged 15% to 11.34 million bpd from April and 160,000 bpd more than the previous record set in November