China’s implied oil demand leapt 8% in March from a year earlier, the fastest rate in 19 months, as refiners boosted imports to stock up ahead of the Olympics, official data showed on Tuesday.
A resurgence in demand from the world’s number-two consumer has helped drive oil markets up nearly a quarter this year to a record near $118 a barrel on Monday, even as high prices and an economic slowdown dent demand in the developed world. Demand rose 6.2% in the Q1, aided in part by a Beijing’s tax rebate on imported fuels, which has taken some of the sting from refining losses inflicted by the widening gap between soaring crude costs and low retail prices.
China used or stockpiled 7.26 million barrels of oil per day in March, Reuters calculations based on net fuel imports plus refinery production showed on Tuesday. This was supported by a leap of one-third in net imports versus a year ago, the fastest growth since the start of 2007, with diesel and fuel oil shipments strongest. Despite low margins, March refining runs were up 6.8% from a year earlier and analysts say that with the Olympics looming, Beijing may have invoked patriotic pride to encourage its firms to stock up to ensure smooth supplies. Because China does not publish inventory data, oil that is put into storage tanks registers as part of implied demand. “March demand growth was robust...this may reflect the desire on the government’s part to build up inventory before the summer Olympics,” said US-based analyst Paul Ting. “Another reason for inventory build was the speculation that the government may raise product prices. As the hope of price increases fades, there were some de-stocking recently, but the inventory level is still adequate,” he added. Some refiners are buying feedstock at over $30 per barrel above break-even levels, because pump prices in China have risen by 10% or less since mid-2006.
A year ago, a gap this large would likely have sparked shortages, and eventually a price rise, but this year Beijing has opted to refund import taxes in order to avoid raising prices, which would stoke inflation now at its highest in almost 12 years. Beijing is also mulling a similar import tax rebate for crude shipments and said that from May 1 it will require wholesalers of refined oil products to keep stocks equivalent to at least 15 days of sales to help ward off supply disruptions. And it is stepping up subsidies against monthly refining losses, with PetroChina expecting a first payout from April, all of which has helped keep apparent demand robust, analysts say. Until recently the upstream giant had been expected to cover losses with earnings from its production units, although refining heavyweight Sinopec has been getting government assistance to trim losses for several years.
If this assortment of ad-hoc measures helps prevent a recurrence of the sporadic fuel shortages that China has suffered in recent years, it could put further pressure on world markets, particularly over the peak demand summer period. The country’s car ownership is booming and fuel consumption usually rises in the summer as the newly rich enjoy a smaller scale version of the US ‘driving season’, with weekend trips and air conditioning supporting demand. “Chinese oil demand would probably rise sharply as long as supplies proved to be sufficient,” the International Energy Agency said in a recent report. “In the meantime, domestic needs will likely continue to depend on a high level of imports, both of crude...and products (notably of diesel),” it added. (Reuters)