Traders and analysts say that after Opec+ cut supplies pushed international oil prices above $80 a barrel, Chinese refineries gradually reduced their crude oil import volumes and began to digest their previously accumulated record crude oil inventories.
Over the past decade, the massive inventory buffers established by Chinese refineries, led by Sinopec and PetroChina, have alleviated cost pressures formed during supply tightness or oil price increases. Analysts say China's massive stocks may undermine Opec+'s efforts to tighten supply and support oil prices.
In the last one or two years, China's crude oil inventories have been continuously increasing since March this year, due to the decline in crude oil prices and the rise in demand following the lifting of pandemic control measures, reaching a historical high of 1 billion barrels by the end of July. However, factors such as the worsening economic outlook have led to a rapid decline in China's demand for crude oil. The benchmark Brent crude oil price has fallen by about 4% from the six-month high of $87.55 at the beginning of August.
Previously, Saudi Arabia decided to extend the production cut agreement by three months from September, without ruling out the possibility of further extension based on the market environment. However, the production cut by oil-producing countries such as Saudi Arabia has reduced China's incentive to buy crude oil to replenish inventories. Adi Imsirovic, head of Surrey Clean Energy, estimates that oil prices above $80 reduce China's import motivation, with data showing China purchased only about 750,000 to 1 million barrels of crude oil for storage in the first half of this year.
As the economic outlook grows increasingly pessimistic and the domestic demand outlook worsens, China is consuming its previously accumulated stocks and continuing to reduce crude oil imports. Data from Kpler and Vortex shows that although current inventories are at least 30 million barrels higher than the same period last year, the latest inventories have dropped by 13 million to 30 million barrels from the peak in July. John Evans, an oil broker at PVM, said China's massive crude oil inventory not only meets the needs of the refining industry but also hedges against "panic" buying needs brought about by further increases in international oil prices.
Data shows China's crude oil imports in June reached a 3-year high of 12.67 million barrels per day. However, as major oil-producing countries continuously raised export prices and the spot premium for Middle Eastern crude oil hit a six-month high, Chinese refiners postponed the crude oil scheduled to arrive in October and November.
