Chinese crude oil production in April inched up to 4.18 mb/d, up by 1.5% year-on-year basis supported by the gradual restart of the Peng-lai field as well as CNOOC slowly starting production at the Weizhou 6-12 oil fields in the northern South China Sea, stated London based Barclays in a report.Chinese net crude oil imports in April came in at 5.6 mb/d, higher y/y by 3.6%, reversing two months of negative y/y growth.
Chinese crude oil demand will grow by 5% this year. While May is likely to see an extension of these lacklustre growth rates, June is expected to see a pick-up in throughput as refineries return from maintenance, added Barclays.
However, a fair degree of tentativeness will be exercised in boosting utilisation rates if they continue to face weak margins (especially with weak naphtha cracks on the petchems side).
Once the end consumption side for petrochemicals shows an improvement, demand for light crude grades at the prompt will receive healthier bids. The state of the olefins market in particular warrants close monitoring for this uptick (polyethylene, polypropylene, and styrenics resins).
The bank keep a close eye on Chinese petrochemical demand, with a pick up in growth rates in this product offering the first signs of a sustained demand recovery, in Barclays view. The April numbers point to a marginal growth of 1%.
Overall, Chinese implied oil demand in April rose by 2.7% y/y to 9.6 mb/d. The growth rate of 300 thousand b/d is lower compared to the 800 thousand b/d average seen in Q4 last year and follows through from an inventory equation in March which showed a build of 2% m/m.
The build in crude inventories is a reversal from the previous five months of draws seen since October last year. These builds of a moderate scale are largely in line with refineries going into scheduled maintenance and are expected to continue withdrawals over June as they come online again.
This does not signal an outright weakness in end-user consumption as regional product inventories cited by the National Development and Reform Commission at the end of April showed that stocks had eased by 2% for gasoline and 12.5% for diesel from end-March highs, which suggests that underlying demand was slightly stronger than headline data suggests.
Source: Barclays