LAUNCESTON: China’s refineries produced the most fuel on record in June and oil consumption reached the highest in 17 months, but there are still doubts as to the true strength of demand.
Crude throughput totalled 10.18 million barrels per day (bpd) in June as refineries returned from maintenance and new plants ramped up to full production.
This was a seven per cent gain from May and 5.8 per cent higher than June last year, according to data from the National Bureau of Statistics.
Implied oil demand reached 10.2 million bpd in June, the highest level since January last year.
Implied demand is calculated by adding net fuel imports (or subtracting net exports as has been the case several times this year) to refinery throughput.
The weakness with this is that it doesn’t take account of changes in commercial and strategic stockpiles, data for which isn’t available.
However, strong crude imports in the first half of the year, coupled with modest refinery throughput in the first five months, supported the view that China was once again filling strategic storage.
However, it’s likely that the flow into tanks has ended, at least for now, with crude imports slowing and refinery runs increasing.
Crude imports in June were 5.66 million bpd, down 7.8 per cent from May and lower than the first half average of 6.13 million bpd.
Overall, the numbers appear to be painting a picture of a nascent recovery in fuel demand, which would be in line with some signs of a rebound in economic growth, with the HSBC/Markit Flash Manufacturing Purchasing Managers’ Index rising to an 18-month high in July.
But the numbers mask different situations for the various refinery products, with the strength in domestic demand being concentrated in petrol and not in gasoil, or diesel, which is the fuel more usually associated with economic growth given its role in transportation, manufacturing and construction.
Total vehicle sales are up 8.4 per cent in the first six months of the year, but more importantly for petrol is the 11.2 per cent jump in passenger car sales, given that Chinese buyers overwhelmingly choose petrol over diesel.
The breakdown of refinery output shows that petrol output rose 9.5 per cent in the first half from the same period in 2013, while diesel only gained 0.15 per cent.
This shows that refiners are trying to maximise their petrol yield, and even among the middle distillates, kerosene is preferred, given output of the jet and heating fuel rose 21 per cent in the first half.
It’s likely that if the Chinese economy does post stronger growth in the second half of this year that diesel demand may improve, but in the next few months it’s equally likely that Chinese refiners will have too much diesel on their hands.
This raises the possibility of increased exports of the fuel, which would fit in with recent trends.
China exported 476,406 tonnes of diesel in June, equivalent to about 119,101 bpd.
This exceeds the average of the first six months of 87,000 bpd, according to customs data.
This means that so far in 2014 diesel exports have jumped about 20 per cent, while jet kerosene exports have gained six per cent and petrol exports have declined 9.8 per cent. Reuters