China’s fourth-quarter crude oil imports remain a mystery. In this regard, China refineries have the capacity to increase imports. But given the current situation, no progress is certain. In its latest weekly report, shipbroker Gibson said that “throughout the pandemic China has been a key focal point.”
He goes on to say that China was the first country to be lockdown. It was also the first victim of falling oil demand. But it has been the strongest so far. Also China has been successful in exploiting the fall in oil prices. Hence, domestic refineries have increased their activities by using domestic demand recovery. However, overseas demand has remained stubbornly low.
New lock down measures also threatens any further growth in consumption. But the important question is, what will refineries do with their surplus? According to Gibson, “China’s quota system for crude imports and exports is a key factor which complicates matters for domestic refiners. Historically the system has operated on a ‘use it or lose it’ basis, with refiners fearful that if they do not fully utilize their quotas, they will receive lower allocations the following year.”
Customs data show that Chinese refineries used 56% of their export quotas. This means that they have to export 24 mln tons from September to December. However, they exported 3.35 mln tons in September. But they should export an average of 6.88 mln tons per month by the end of the year. But Kpler data show that the highest level was 4.91 mln tons. He believes that if refineries want to export, their markets are limited.
In total, 2020 has been an unprecedented year. “The one factor exporters have in their favour is cheap freight,” he said. With the weak market for oil and crude oil products, prices are expected to remain under pressure.
Floating storage may also be another option. “Exporters may seek to push product into floating storage in order to clear customs, however even this option may be challenging,” he added. Therefore, China’s export growth is uncertain. But seasonal exports usually increase in the fourth quarter. China also has a large export quota. However, low demand abroad is still the biggest obstacle. As with most things oil these days, all eyes are on China”, Gibson concluded.
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