Chinese oil imports pick up in October, but problems remain

In this update, we take a look at the latest developments around Chinese oil demand and what to expect heading into the end of the year.

Summary:

• Chinese domestic clean product demand growth slowed considerably in Q3, managing a gain of just 210 kbd y/y, far below the 610 kbd y/y gain seen through the first half of the year. This weighed heavily on refinery runs, which finished Q3 down nearly 1 Mbd y/y.
• The lack of ability on the part of Chinese refiners to export excess clean product volumes abroad due to sluggish international demand, has also weighed on runs. In October, just 55% of total clean product export quotas had been utilized and in Q3, seaborne light end and middle distillate departures finished at just 670 kbd, down 300 kbd against the same period a year earlier.
• Slowing clean product demand growth and an outright decline in product exports through Q3 weighed on crude imports. Seaborne oil arrivals in Q3 finished at just 10.1 Mbd, lower 870 kbd y/y. Nonetheless, the situation has shown some signs of improvement into October, with offtakes through the first ten days of October managing 11.1 Mbd. A portion of this increase is likely accounting for the seasonal uptick in runs, albeit some oil inventory restocking is also taking place.
• The forward outlook for Chinese oil demand growth looks likely to slow dramatically relative to the norms seen in the years pre-Covid. Q3 was a wakeup call to the market that China faces new economic challenges that will be hard to fix. While stimulus measures could provide some reprieve, rapid oil demand growth will have to come from somewhere besides China over the next decade.