China’s 2022 crude imports seen rebounding on new refineries, inventory refill
China’s crude oil imports could rebound by 6-7% this year, reversing 2021’s rare decline as buyers step up purchases for new refining units and to replenish low inventories, analysts and oil company officials said.
Robust demand from China, which accounts for a tenth of the global crude trade, would help underpin global oil prices, keeping supplies tight amid forecasts for a jump in crude prices to $100 a barrel or more.
Demand recovery, however, is not expected until the second half of the year as China continues to combat COVID-19 outbreaks and limit production by smaller refiners.
For 2022, crude oil imports into China look set to grow by 600,000-700,000 barrels per day (bpd), offsetting last year’s 590,000 bpd fall to match or beat 2020’s record volume of 10.85 million bpd, analysts at FGE, Rystad Energy and Energy Aspects told Reuters.
Brent and West Texas Intermediate futures LCOc1, CLc1 are already at 7-year highs near $90 a barrel as investors look beyond the demand hit from the Omicron variant.
“We expect China’s refinery runs to grow by 500,000 bpd, mainly driven by new refinery capacity coming online in 2022 and the recovery in transport and aviation fuels picking up the pace in the second half of the year,” said Julie Torgersrud of Rystad Energy.
Imports are likely to make a slow start initially as Beijing’s zero-tolerance virus control measures keep a lid on fuel demand, while reduced import quotas and narrowing refining margins will limit production by independent refiners.
Refinitiv data showed January arrivals totalled 41.13 million tonnes (9.69 million bpd), below 44.6 million tonnes in January 2021 and 46.1 million tonnes two years ago.
A possible release of state petroleum reserves (SPR) in coming weeks will also dampen national oil companies’ purchases, analysts said.
Demand is set to recover later in the year, driven by new refining capacity at integrated petrochemical producers, in particular Zhejiang Petrochemical Corp and Jiangsu Shenghong Petrochemical.
“We expect crude imports to grow by 600,000 bpd year-on-year, driven by new capacities and a return of stockpiling,” said Mia Geng, analyst with FGE.
East China-based Zhejiang Petrochemical, the country’s single-largest refiner, aims to operate its newly built 800,000-bpd crude units at full rates this year, said two company executives. That will represent an increase of 280,000 bpd versus 2021.
Newly commissioned Shenghong Petrochemical is expected to reach commercial operation in May at its 320,000-bpd plant in Lianyungang, two other sources said.
Another greenfield plant, the 400,000-bpd PetroChina-invested Jieyang Petrochemical in southern Guangdong province, may begin trial runs in the third quarter, sources added.
Shenghong declined comment. PetroChina and Zhejiang Petrochemical didn’t immediately respond to requests for comment.
Analysts cautioned that the ramp-up by national firms may be partly offset by Beijing’s broad curb on refinery processing through policies that include cutting import quotas for smaller refiners, as well as moves to slash fuel exports to tackle carbon emissions.
“It has become increasingly clear that small independents’ share is likely to continue falling this year amid a series of crackdown measures,” said Shi Fenglei, China-based analyst with IHS Markit.
The restocking of oil reserves is also expected to boost buying in the second half, led by state refiners Sinopec 600028.SS and PetroChina 0386.HK after an estimated steep inventory drawdown last year.
Total onshore crude oil stocks, excluding underground storage which is hard for satellites to detect, fell by 140 million barrels last year, Vortexa Analytics estimated, which a market source said was likely the largest drawdown since 2015.
China began refilling tanks in recent weeks, putting 4 million barrels of Iranian oil into reserve tanks in south China, Reuters reported.
Unipec, Sinopec’s trading arm, has also been sweeping up millions of barrels of crude from the United States, Russia and the Middle East this month in an unusual buying spree, traders said.
The extra supply could be used to ramp up refining output after the Lunar New Year and to refill stockpiles, they said.
Source: Reuters (Reporting by Chen Aizhu; additional reporting by Florence Tan; editing by Richard Pullin)