China oil demand fell 2.7% (year over year) in May – Platts

China’s crude oil imports between Jan. and May surged 15.7% to 7.62 million b/d, surpassing growth of 8.8% seen in 2015

China’s apparent oil demand contracted by 2.7 per cent in May from a year earlier to 10.88 million b/d, according to an analysis of government data by S&P Global Platts.

Refinery throughput in May averaged 10.46 million b/d, data from the China’s National Bureau of Statistics showed June 12. This was a 0.04 per cent decline year over year and a 4.3 per cent drop month over month.

However, net imports of key oil products slumped 41.4 per cent from a year earlier to an average 423,000 b/d in May, as exports of transport fuels climbed higher, data from China’s General Administration of Customs showed.

The contraction in oil demand in May represented the fourth consecutive month of negative growth and was due to declines in gasoil and fuel oil demand, amid slowing economic growth.

Over the first five months of 2016, apparent oil demand averaged 11.1 million b/d, down 0.8 per cent. In contrast, apparent oil demand had increased by 9.1 per cent during January-May 2015, when lower fuel prices incentivized end users to boost consumption.

China’s oil demand growth is expected to moderate significantly in 2016 as gross domestic product growth slows on the back of economic rebalancing.

China’s government data shows the economy expanded by 6.7 per cent in the first quarter of this year, a decline from 6.8 per cent in the fourth quarter of 2015.

China’s 2016 apparent oil demand is forecast to grow by less than 2 per cent, according to Platts China Oil Analytics, an on-line platform for supply/demand and trade data, of S&P Global Platts.

Gasoil
Apparent demand for gasoil in China contracted by 13 per cent year over year in May and this was partly reflected in exports of the fuel hitting a new record high volume of 356,000 b/d during the month as refineries grappled with domestic oversupply and stagnant consumption levels.

The fuel is used in the industrial and heavy transport sectors. Demand has taken a hit in recent years on the slowdown in the manufacturing sector, amid China’s transition towards more service-sector-led economic growth.

Over Jan.-May this year, gasoil apparent demand has fallen by 8.5 per cent to an average 3.3 million b/d. This volume is the lowest level since the same five-month period of 2010.

“Platts China Oil Analytics forecasts gasoil apparent demand to fall by more than 3 per cent in 2016, although more stimulus measures in the form of monetary easing and infrastructure investment could provide some upside to consumption,” said Song Yen Ling, senior analyst with Platts China Oil Analytics.

Gasoline
Bucking the wider trend this year, apparent demand for gasoline in May fell by 1.3 per cent to average 2.68 million b/d, which was also a 7.1 per cent month-on-month decline, according to S&P Global Platts calculations.

The contraction in the apparent demand figure was due to a 105.7 per cent year-on-year increase in gasoline exports.

China’s gasoline market has witnessed intense competition this year following increased refining activity by independent refiners, as well as higher production by fuel blending companies.

This has resulted in higher supply in the domestic market and led to state-owned companies exporting significantly more volumes of gasoline compared with 2015.

However, data on gasoline sales by independents and fuel blenders is not readily available and is likely not fully captured by the official government statistics.

This helps explain why China’s gasoline apparent demand this year has risen only 5.9 per cent over Jan. to May, compared with 9.4 per cent over the same period of 2015.

Passenger vehicle sales however remained strong, rising 9.8 per cent year over year in May, suggesting consumption growth is still very robust.

Fuel Oil
China’s fuel oil apparent demand continued its downward trajectory as independent refiners which now have access to imported crude oil no longer need fuel oil as a primary processing feedstock.

This has been happening since the second half of last year, when the government deregulated crude oil import rights and started giving out import quotas to independent refiners in China.

In May, fuel oil apparent demand fell 17.3 per cent year over year for the fourth consecutive month, bringing demand during the first five months of 2016 to an average 737,000 b/d.

This is an 18.6 per cent contraction from the same period of 2015. To date, a total of 1.2 million b/d of crude oil import quotas have been approved for these refiners.

With fuel oil not as popular with refiners as processing feedstock, consumption is mainly focused on the bunker market, with some buying by petrochemical plants as feedstock.

In contrast, independent refiners’ appetite for crude oil has surged significantly in 2016.

China’s crude oil imports between Jan. and May surged 15.7 per cent to 7.62 million b/d, surpassing growth of 8.8 per cent seen in 2015.

Meanwhile, fuel oil imports into China have slumped nearly 40 per cent to just 307,000 b/d over the same period according to Platts.

Month-to-month demand in China is generally viewed to be subjected to short-term anomalies which are of interest and important to note, but often fail to reveal the country’s underlying demand trends.