China’s oil-buying spree a boost for global demand outlook
CHINA has ramped up its oil purchases as an expected recovery in the nation’s crude consumption gathers pace following the end of its strict “Covid Zero” policy, boosting optimism in the outlook for global demand.
The buying has been led by Unipec, the trading arm of refining giant Sinopec, which snapped up about 10 million barrels from the United Arab Emirates for loading in April, said traders who buy and sell those shipments. The company has also taken long-haul cargoes from West Africa, they said.
There is a growing chorus of bullish calls that China’s recovery will lead to a rebound in oil prices, with some predicting Brent will climb back above US$100 a barrel later this year. Other refiners including China National Chemical Corp and Rongsheng Petrochemical Co have also picked up cargoes – including from the US – in the early part of this month’s spot-market cycle.
Refiners are stocking up in anticipation of a demand recovery, and they would rather be oversupplied than under-supplied, said Michal Meidan, director of the China Energy Research Programme at the Oxford Institute for Energy Studies. Processors were caught off guard with the strength of demand for petrol after Covid-19 restrictions were eased, she added.
Unipec’s most recent purchases follow a buying spree last month, and traders said it could signal a further increase in operating rates or even stockpiling of crude. State-run processors are also seeking more cheap Russian oil, although refiners are expected to maintain a strong appetite for grades from the Persian Gulf, said Energy Aspects analyst Jianan Sun.
“Expectations of a robust domestic recovery and commercial restocking could drive Chinese buying even higher,” Sun said.
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Cargoes purchased in this trading cycle – which typically runs for around two weeks – will mostly arrive in May, roughly in line with expectations for a strong increase in consumption from as early as the second quarter.
State-run processors boosted processing rates in the week through Feb 9 to the highest level since early December, said OilChem. Private refiners also lifted output on better refining margins, the industry consultant said.
Refiners will likely ramp up processing rates “more aggressively” over March and April, said Mia Geng, an analyst at FGE. The industry consultant estimates domestic Chinese demand will improve by 500,000 barrels a day in the second and third quarters, compared with the first three months of 2023.
A key indicator of Asian demand for Middle Eastern barrels – Oman’s premium to Dubai swaps – this week strengthened to the highest level in almost three months, according to data compiled by Bloomberg. The backwardation in prompt Dubai timespreads have also firmed over the past two weeks.
The market is looking for a sustained recovery in Chinese demand, and a sharp rebound in travel over the Chinese New Year holiday at the end of January added to optimism in the outlook. China will hold the annual session of the National People’s Congress in Beijing from Mar 5, when the government could unveil stimulus packages that may underpin further energy consumption. BLOOMBERG
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