Kpler OIL (Chinese Seaborne Crude Import Dynamics)

 

Originally Released on 15 September 2017

Chinese Seaborne Crude Import Dynamics

Beginning in mid-2015, China surpassed the United States as the world’s largest importer of crude oil. As a result, China plays an increasingly important role in the global supply-demand characteristics for crude. Understanding this market is vital given the distinct interplay between domestic demand and external supply fluctuations.

Over the past several months, Chinese seaborne crude oil import data indicates a change of trend from late 2016 and early 2017. Between March and August of this year, total Chinese seaborne crude imports fell by 1,102 kbd – a near 13% decrease in just a 6-month period. This is distinctly different from the period between October and March, where crude imports increased 2,720 kbd. Notice the clear up and down movement of the 3-month moving average

Saudi Arabia served a central role in providing crude allocations to China in 2016 – the OPEC leader sent more crude oil to China than any other nation-state in all but two months that year.  Late in 2016, the OPEC organization (excluding Nigeria and Libya) along with several other non-OPEC-affiliated crude exporting nations agreed to actively cut production to rebalance a global market awash with cheap oil. China faced a dual dilemma of flat to falling imports from Saudi Arabia paired with domestic increases in the demand for crude. The nation-state sought an increase in crude imports from several sources – namely West Africa and the North Sea.   

Between February and May 2017, total imports of West African and North Sea grade crudes increased by a total of 544 kbd. Approximately 49% of this increase was import growth from Angola, which ironically is an OPEC member nation. In the same period, Saudi imports fell by 181 kbd.

Notice the rather high period of Chinese import demand between March and June (average of 8,322 kbd during this period). This tended to provide upward pressure on imports not only from West Africa and the North Sea, both of which increased to a peak of 2,156 kbd in May, but also on Saudi imports ever so slightly, which increased to 1,046 kbd in the same month.

Beginning in June a general downward trend is reflected in total imports from all three geographical areas as overall Chinese import demand contracts. Between June and August, total Chinese imports from West Africa, the North Sea and Saudi Arabia fell a combined 428 kbd.

The interplay between supply and demand tends to highlight the subtlety in deriving a market equilibrium for Chinese seaborne crude markets. As is reflected in the data, one often dominates the other for periods at a time before the dynamic changes.

  • China experienced a rapid increase in seaborne imports between November 2016 and March 2017.
  • China sought alternative sources of crude as Saudi actively limited crude allocations to Asia. This supply gap was partially filled through increased levels of crude purchases from West Africa and the North Sea.
  • Angola played a central role in providing crude oil to China, even as Saudi Arabia limited exports. Angola is a member of the OPEC organization.
  • Crude imports from West Africa, the North Sea and Saudi Arabia have all realized declines over the last several months as Chinese import demand has fallen.

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