Chinese oil demand feeding weak market
While most of the countries are reducing crude consumption due to the pandemic, China is stockpiling cheap oil
China seems to be the global oil market’s lifeline this year, as the country is likely to become the only major buyer who will increase its crude imports in 2020. While worldwide oil consumption is expected to contract by 9% this year, Chinese buyers are enjoying attractive prices constrained by global economic turmoil.
China has stepped up crude purchases from exporters like Russia, the United States and Angola in recent weeks, says Reuters adding that buyers elsewhere keep paring orders. Amid a new surge in COVID-19 cases and fresh lockdowns all over the world, only China is expected to see increased oil demand this year. Global demand is expected to fall from 100,1 million bpd in 2019 to 91,3 million bpd in 2020 according to the International Energy Agency.
Meanwhile, China’s imports are forecasted to reach 12 million bpd in 2021. For the last few months, rising COVID-19 infections have pushed the prices of key crude grades lower. Chinese buyers have taken advantage of the situation buying oil at low prices to increase reserves. “China has raised its quotas and [storage] capacity. It looks like the demand will be centred there in the near future,” said a trader at a European refiner adding that lockdowns would probably be in place in Europe for much of this winter. “Chinese demand is more visible now,” confirmed a trader in the Russian Far East crude oil market. “Trading firms are very active, as they expect more requests from China’s independent oil refiners that will buy oil under new import quotas.”
The premium for Russian January-loading ESPO Blend crude, which is one of the most popular grades for Chinese independent oil refiners, is currently at five-month highs. US crude grades are also rebounding after a 12% drop in domestic fuel demand as well as Middle East crude prices. According to a Chinese buyer, traders were offering US crude, North Sea Forties and West African grades, as they expected arbitrage economics to improve after sharp gains in Middle East prices.
Oil grades with higher naphtha yields such as light, sweet US crudes are in higher demand from petrochemical buyers, one trader with an Asian refiner said. Light grades produce more gas oil, which is used for heating. It is also in greater demand compared to jet fuel, where consumption has collapsed. Thus, heavier crude grades are seeing less robust demand.