China set for oil influx just as Covid measures hit demand

(Bloomberg) – China looks set to receive an influx of seaborne crude oil in the coming weeks as cargoes bought before its latest Covid shutdowns head for the nation’s ports.

Exporter countries loaded almost 9.3 million barrels a day of oil for China in October, tanker-tracking data compiled by Bloomberg show. The figure, almost 500,000 barrels a day more than September, is the highest since at least December. It will almost certainly get revised up as more ships declare their destinations.

Many of cargoes in question would have been bought back in September when there were signs China was emerging from the worst of its measures to combat the spread of Covid. But in recent weeks, the trading arms of top refiners including PetroChina, Sinopec and ChemChina made a flurry of crude purchases that will arrive next month or in January.

“A lot of Chinese refineries were expecting China to come out of lockdown, and expecting stronger demand in the last quarter of the year and into the start of next year,” said Mark Williams, a research director at Wood MacKenzie. “The new lockdown threw a curve ball on that theory.”

The export flows data are supported by the number of supertankers signaling China as their next destination, which has stuck near 20-month highs in recent weeks, according to separate data compiled by Bloomberg.

It’s not clear yet that China is going to change its approach to Covid any time soon.

China’s top health body said that the nation’s zero-tolerance approach remains the overall strategy to fighting Covid-19, underscoring uncertainty about when demand will pick up.

While consumption may be under pressure domestically, China’s refineries are benefiting from improved fuel exports to the global market thanks to new quotas allowing them to ship an additional 15 million tons of refined fuels, after months of very low allocations.

State-owned oil refiners were expected to ramp up processing rates to 80% through year-end to tap the new allowances, OilChem analyst Xia Wenhong said during a webinar.

“The Chinese government awarded Chinese refiners a substantial increase in their refined product export quotas for the fourth quarter, potentially rolling in to the first quarter of next year,” Williams said. “That has given refiners an impetus to increase refining crude oil as they can now export a lot more product than they have been able to.”