Dec 18 / Victor Arduin

Energy Weekly Report - 2023 12 18

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"Not only have crude oil imports in the country reached record levels, but there has also been a substantial increase in the demand for transportation fuels, specifically gasoline (+17,18%) and jet fuel (+131,17%) when compared to the previous year."

China Shows Signs of Reduced Demand for Fuels

  • A more "robust" economic recovery from China was expected after a prolonged period of lockdown in the country. Despite some concerns arising from the nation, the energy sector has shown resilience.
  • An example was the substantial growth in the consumption of transportation fuels, especially gasoline and jet fuel, benefiting from the easing of circulation restrictions in the country.
  • However, the country's demand is somewhat disguised as it has been importing more oil than necessary, largely due to discounted prices from countries like Russia.


China plays an important role in the global energy complex. Due to the size of its economy, the country needs to import large volumes of oil to meet its domestic needs, which has largely driven a bullish sentiment in the market for this year. However, in recent months, there has been a decline in oil imports, and the availability is even greater than the country's needs.

While the pandemic's restrictions previously allowed China to use its refining capacity to meet external demand, leading to a surge in exported petroleum products in 2022, this scenario is unlikely to persist this season. Several factors contribute to this: Beijing's prioritization of domestic needs, resulting in reduced export quotas, coupled with declining global profit margins for these products, reducing the incentive for outward shipments of gasoline and diesel.

Image 1: Gasoil Exports – China (M bpd)

          Source: Refnitiv

Image 2:  Gasoline Exports – China (M bpd)

             Source: Refinitiv

Consumption of transport fuels grows in China, but is losing momentum

There were high expectations for the reopening of the world's second-largest economy in 2023 after years of COVID-19 restrictions. Despite various economic indicators raising concerns about the country's financial health, from the oil perspective, energy consumption has significantly increased in the country, on track to reach record highs, rebounding from the subdued levels experienced between 2020 and 2022.

Not only have crude oil imports in the country reached record levels, but there has also been a substantial increase in the demand for transportation fuels, specifically gasoline (+17,18%) and jet fuel (+131,17%) when compared to the previous year. Having said that, one would expect a more bullish market for oil, at least when it comes to China demand, but that is not the case.

Image 3: Crude Oil Imports – China (M bpd)

Source: Bloomberg

Much of the increase in the consumption of petroleum-derived products is associated with suppressed demand from an extended period of lockdowns in the country. It is natural that this year's reopening would provide a boost in demand, but the question remains: will it be sustained into 2024?

Some signs already show that it should not be the case, fueling the already bearish expectations for the oil market. Yes, oil imports have grown by 12.1% in the first 11 months of the year (equivalent to 1.21 millions bpd), but this falls below the forecast of the International Energy Agency (IEA) of 1.8 million bpd in 2023.

Furthermore, the country is increasing its oil inventories. Although China does not disclose volumes of crude flowing into or out of strategic and commercial stockpiles, an approximation can be made by deducting the amount of crude processed from the total crude available. On average, the total available oil was 15.54 million bpd this year, that is imports and domestic production, while the processed amount was 14.86 million bpd. Therefore, approximately 680,000 bpd were added to the inventories.

Image 4: Growth Apparent Demand for Transport Fuels – China (%)

Source: Bloomberg. Note: Apparent demand is calculated by deducting net exports from production (apparent demand = production + imports - exports)

In Summary

China serves as yet another example of the risks in the oil market. The country continues to import substantial volumes of oil, not due to a high domestic demand but rather influenced by geopolitical factors and discounted prices of Russian oil. Now, after accumulating stocks throughout the year, oil imports in November declined by 9.2% compared to the same period last year.

Despite not exporting its refined products this season, gasoil and gasoline prices continue to fall globally, indicating demand much lower than expected a few months ago. In other words, more downside risk for petroleum-derived products.
Furthermore, macroeconomic trends for the coming year will play a crucial role in anticipating oil demand in China. An increase in economic activity indicators is expected, especially in the industrial sector, which should stimulate a rise in oil demand

Weekly Report — Energy

Written by Victor Arduin
Reviewed by Pedro Schicchi


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