The global oil market faces soft spots in the outlook for Chinese demand this half, potentially adding a headwind for crude prices.
Taken together, a slower-than-expected return of refineries from seasonal maintenance, softer purchases from some key suppliers in July, and a potential drop off in monthly import volumes suggest that there’s a lack of vigor in the world’s largest crude importer, offsetting strength elsewhere.
Global crude prices have advanced more than 12% this year as the Organization of the Petroleum Exporting Countries and allies curtailed supply to shore up the market, and traders bet that US monetary policy would ease. Against that backdrop, key metrics suggest tightness in the near term, and US crude stockpiles just tumbled. Still, conditions in China — which accounts for one barrel in six of global oil consumption — remain a point of concern.
Coming back from seasonal maintenance, state refiners are expected to raise their daily processing volumes by just 1.3% this month compared with June, according to data tracked by Mysteel OilChem based on a survey of 58 refineries affiliated with PetroChina Co. and Sinopec and shared with clients. In the same period last year, the gain was about 3%.
China’s recovery has underwhelmed this year, with progress weighed down by a persistent property crisis and falling consumer confidence that’s blunted demand for diesel, a key transport and industrial fuel. As returns from making the product were crimped, processors have cut their operating rates, with a further bout of planned maintenance to come in the fourth quarter.
While nationwide crude imports from January to May kept pace with the volume seen in the same period of 2023, there are signs a significant recovery may take longer. Contractual supplies of Saudi Arabian crude were reduced by 4 million barrels on-month in July, while trading was slower than usual for Russia’s ESPO, according to traders who participate in the market.
That trend has been highlighted by watchers including Citigroup Inc., which has a less sanguine view of the market’s prospects than rivals including Goldman Sachs Group Inc. and Standard Chartered Plc. Imports are seen at 9.5 million barrels a day in July, down 1.1 million barrels a day on-month and 800,000 barrels a day on-year, analysts including Eric Lee wrote in a note.
China’s crude buying “has never been strong,” they said, citing cargo-tracking data.
