China experienced significant crude stock builds in May, despite a decrease in seaborne imports. This creates an important consideration for market analysts regarding the nation’s underlying demand for oil.
The imports for May fell by 8% month-on-month and 3% year-on-year, dipping below the 10 million barrels per day (mbd) threshold. Supplier nations such as Saudi Arabia, Iraq, Russia, and Iran all saw declines in export volumes compared to April.
Interestingly, China’s onshore crude inventories continued to rise, with stockpiling rates surpassing 1 mbd for the second month in a row. Implied refinery runs decreased by 3% year-on-year, nearing a three-year seasonal average.
This suggests diminished utilization rates, a concern given the significant capacity expansions witnessed in recent years. Particularly impacting this decline were the independent teapot refiners, who faced maintenance delays this spring, which affected their processing capabilities.
In May, several Chinese oil majors also had significant capacity offline due to scheduled maintenance. However, as outages conclude in late May and early June, we may see refinery throughput increase.
Yet, any significant rise in imports could take a while, impacting stockpiling trends through June before a possible rebound in July and August as cheaper OPEC barrels arrive. The reported decline in Iranian crude imports below 1.1 mbd in May, down nearly 30% from the previous month, reflects reduced demand from independent refiners, known as teapots.
While they rely increasingly on discounted crude to maintain margins, operational constraints at Dongying Port due to U.S. sanctions have also played a role in this downward trend. Looking ahead, crude demand in China might rebound in June as maintenance ends and seasonal demand rises.
Yet, consistent weakness from other sectors, like construction, may keep overall refinery runs either flat or lower than the previous year’s levels. With onshore inventories at a four-year high of over 1.07 billion barrels, there is less urgency for additional stockpiling, but room for future builds remains an important consideration for Chinese oil majors and teapot refiners alike.