Chinese crude oil demand is expected to grow by 350 thousand b/d in Q1 2014 as two new refineries are set to receive a boost with 200 kb/d Sichuan and 240 kb/d Quanzhou. The refineries already begun trial runs and could come online immediately. Both refineries had initially been expected to start in Q4 13, and their delays contributed to the softness of demand in 2013., a Barclays report quoting Bloomberg News said.

Slower economic growth in 2013 dragged down oil demand in China, especially diesel demand growth. Gasoline demand growth outperformed diesel by a wider margin in 2013, as strong car sales and more driving lifted the appetite for gasoline also result in the soft demand of crude oil in 2013. In addition, the rollout of cleaner fuel in 2013 before a January 2014 deadline, which the refiners did region-by-region, resulted in less robust runs and leaner product stocks, as refiners drew down higher-sulfur stocks ahead of the deadline.

According to Bloomberg report, tanker loading data suggest that Chinese refineries have loaded a rather large amount of crude cargoes over the last few weeks in December for delivery in January. Eighty of the industry’s biggest tankers were reported sailing into Chinese ports on 3 January, up 29%y/y. The concentration of imports over these weeks is likely to be in anticipation of the Chinese New Year holidays and would reflect positively on the import data for this month, but refinery runs may not rise proportionately.

The key element to keep on the radar with regards to Chinese refinery runs is the increased export orientation. Even in the scenario that domestic oil demand growth moderates further, runs are likely to be elevated as export quotas have widened and Chinese refineries increasingly become a proxy for demand among the smaller non-OECD Asia Pacific countries in the region through their export activity. Overall, Chinese oil demand to expected to grow by 350 thousand b/d (3.5% y/y) this year, with other factors such as fuel oil substitution and SPR filling activity to lend layers of support.
Source: Barclays