China's recovery in crude oil imports is more bearish than bullish: Russell
LAUNCESTON, Australia, May 12 (Reuters) - China's imports of crude oil edged into positive territory for the first months of the year, but rather than a sign of improving fuel demand, the recovery is more about rising inventories.
The world's biggest crude importer recorded arrivals of 11.69 million barrels per day (bpd) in April, down slightly from March's 12.1 million bpd but 7.5% higher than the 10.88 million bpd from the same month last year, according to customs data released on Friday.
March imports were the strongest since August 2023 and the relatively robust outcome for April took arrivals for the first four months of the year to 11.83 million bpd, up 0.5% from the same period in 2024.
But it appears the driving force behind the strength in imports in March and April was the availability of discounted cargoes from Iran and Russia, two countries that have been subject to new sanctions imposed by the United States.
China's seaborne imports from Russia were 1.38 million bpd in April and 1.22 million bpd in March, the strongest two months since the 1.51 million bpd in October last year, according to data compiled by commodity analysts Kpler.
Imports from Iran were assessed by Kpler at 743,000 bpd in April, down from 1.39 million bpd in March, which was the highest month since October.
It's likely that imports from Iran came under pressure in April because U.S. President Donald Trump's administration ramped up pressure on Tehran to curb its nuclear programme.
Sanctions imposed in March and April on two small Chinese refiners for buying Iranian crude have led to difficulties in sourcing oil for Shandong Shouguang Luqing Petrochemical and Shandong Shengxing Chemical, Reuters reported last week.
But more importantly, the sanctions on the small operators have deterred bigger independent refiners from buying Iranian barrels, resulting in the drop in imports in April.
The question is how long Chinese buyers will remain wary of buying Iranian oil, or put another way, how long it will take them to find ways to work around the latest sanctions and resume importing from Tehran.
The same dynamic is also seemingly at play with Russia, with China's imports dropping sharply after the imposition of new sanctions in January against vessels carrying Russian crude by the outgoing administration of former U.S. President Joe Biden.
China's seaborne imports from Russia dropped to the lowest in 26 months in February, with Kpler assessing arrivals of 970,000 bpd.
But since then they have recovered, as refiners were able to work around U.S. sanctions.
It's one thing knowing that China's crude imports have risen because refiners are buying more oil from Russia and Iran, but it's another understanding why they are doing so.
The increased imports are most likely finding their way into commercial or strategic storages as Chinese refiners take advantage of the discounts on offer, while at the same time they worry that flows from Russia and Iran are likely to be subject to increasing sanctions by the United States.
China does not disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate of the surplus crude available can be made by deducting the amount of oil processed from the total of crude available from imports and domestic output.
On this basis, China's surplus crude amounted to 1.74 million barrels per day (bpd) in March, the most since June 2023, according to calculations based on official data.
The swing to a huge surplus of available crude in March came after refiners made a rare draw on stockpiles in the first two months of the year, when oil imports were weak amid the higher prices that prevailed when cargoes were arranged.
It's also likely that storage flows continued in April, with analysts Vortexa saying the average build in inventories exceeded 1.1 million bpd in the five weeks that ended May 4.
With global crude prices under pressure from increased OPEC+ supply and concerns over global demand sparked by Trump's trade war, the question is whether China will continue to buy crude to build inventories.
Certainly, periods of low prices have tended to result in higher imports, but refiners may be more cautious this time around given the deteriorating economic outlook.
The views expressed here are those of the author, a columnist for Reuters.
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