Launceston, Australia: One of the clouds hanging over the global oil demand outlook is what’s happening to Chinese consumption, with crude imports falling in the first half of 2013.
The 1.4 per cent drop in imports contrasts with modest growth in implied oil demand. Such differences are often ascribed to changes in commercial inventories, which are difficult to assess accurately given China doesn’t report stockpile levels.
However, another factor has come to the fore, with domestic oil production rising a fairly strong 4.3 pe rcent over the first six months of the year from the same period in 2012.
Domestic output was 103.615 million tonnes in the first half, according to figures released on July 19 by the National Bureau of Statistics.
This equates to about 4.179 million barrels per day (bpd), or about 172,000 bpd more than in the first half of last year.
This is quite a substantial jump from the figures for the first five months of the year, which showed domestic oil output rising by a more modest 2.7 per cent, or 62,000 bpd.
There is a risk the domestic oil figures are subject to statistical noise from month to month, however, there does seem to be a fairly clear trend of rising production in China.
Output reached a record 207.5 million tonnes in 2012, equal to about 4.14 million bpd, and based on the figures for the first half, it appears likely that 2013 will be another record year.
Part of the story is the commissioning of new offshore fields by CNOOC Ltd, including Weizhou 6-12 in the South China Sea in April and Wencheng 8-3E in the Pearl River Mouth basin in July.
The resumption of output after a spill from the nation’s largest offshore field, the ConocoPhillips-operated Penglai 19-3, in February also boosted output.
China, the world’s fourth-largest oil producer and second-biggest importer, has also managed to maintain output at aging onshore fields, such as the giant Daqing, which is producing at a steady rate of just more than 800,000 bpd.
If one assumed that China’s domestic output had been steady in the first half of 2013, rather than increasing by 172,000 bpd, it would make the import picture quite different, and far more bullish.
Imports were 5.57 million bpd in the first six month, but without the increase in domestic output they may have reached 5.74 million bpd.
If this had been the case, first-half imports would have been 2.1 percent higher than for the corresponding period in 2012.
Put another way, the increase in domestic output has been the difference between the expected positive demand growth for imports and the actual decline recorded.
China’s implied oil demand, which is calculated by adding refinery throughput to net imports of refined products, rose 3.4 percent to 9.82 million bpd in the first half.
This amounts to an increase of about 330,000 bpd, meaning that the rise in domestic output has accounted for more than half of the gain in oil demand.
But it also means China has been adding to stockpiles, as the domestic output plus crude imports exceeds the throughput by refineries.
Adding imports to domestic output shows that crude available for refining in the first six months stood at 9.75 million bpd, but throughput was 9.55 million bpd, a gap of 200,000 bpd.
In turn, this is probably bearish for China’s import demand in the second half as it suggests that commercial inventories are plentiful.
Add to this the apparent loss of economic growth momentum and it’s increasingly difficult to build a bullish case for China’s oil imports.
China was once again expected to be the main driver of global oil demand growth this year, with the International Energy Agency forecasting an increase of almost 400,000 bpd in 2013 in its May medium-term oil market report.
The market would have assumed that the bulk of this increase in demand would have been met by increased crude imports, but this is no longer the case.
Not only does the IEA’s forecast look somewhat optimistic based on first-half data, it now appears that much of the increase in oil demand will be met by rising domestic output.
