China still added to crude oil inventories despite refining, fuel export surge: Russell

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LONDON — A rebound in China’s refinery processing and fuel exports in September was still not enough to prevent the world’s biggest crude oil importer from adding to its stockpiles.

China’s refineries processed the equivalent of 13.88 million barrels per day (bpd) of crude oil in September, the highest in nine months and the first year-on-year increase since November 2021.

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However, the total volume of crude available to refineries was 13.88 million bpd, comprising imports of 9.79 million bpd and domestic output of 4.09 million bpd.

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This means that the volume of crude available was 60,000 bpd more than what was processed, implying a small build in crude oil inventories despite the recovery in refinery throughput.

China doesn’t disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.

The small build in September was a marked contrast to August, when about 850,000 bpd were added to commercial or strategic stockpiles.

For the first nine months of the year China has added about 400,000 bpd to inventories, largely because refinery processing has been even softer than crude imports, which dropped 4.3% in the first nine months of the year compared to the same period in 2021.

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It’s still early, but September may mark the start of a trend whereby China’s refineries start producing more fuel, and also export more refined products, especially diesel.

The authorities in Beijing granted 15 million tonnes of additional fuel export quotas in September, and while this was probably too late to be the reason behind the boost in shipments last month, it does offer the opportunity for refiners to lift product exports in the fourth quarter.

China’s exports of diesel surged in September to about 433,000 bpd, up from August’s 200,000 bpd and the highest monthly rate since July last year.

While diesel shipments are still down 68% in the first nine months of the year, the rebound in September does offer some hope that China will increase its exports of the transport fuel in coming months.

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This may provide some relief to Asian diesel markets grappling with elevated prices as the region competes for cargoes with Europe, which is facing a shortage of the fuel as the continent moves away from buying from Russia after its Feb. 24 invasion of Ukraine.

DIESEL PRICES

The price of a barrel of gasoil, the building block for diesel, in Singapore ended at $130.32 a barrel in Asian trade on Wednesday, which is down some 27% from its 2022 peak of $178.39 on June 21.

However the gasoil price is still 35% higher than it was at the same time last year, and is even more expensive in local currency terms in many Asian nations given the strength of the U.S. dollar.

This is keeping retail diesel prices at or close to record high prices in many Asian nations, which in turn is stoking inflation while crimping economic growth.

If Chinese refiners do export more refined fuels in the fourth quarter, it may ease some of the price pressures.

While Chinese diesel exports may result in a lower profit margin for producing the fuel at other refiners in Asia, it’s likely to remain highly profitable.

The margin for producing a barrel of diesel at a Singapore refinery was at $41.13 a barrel on Wednesday, up 191% from the same day last year.

(Editing by Jan Harvey)