China is continuing to build up crude oil stockpiles as it refines substantially less than what it has available from imports and domestic production.

This allows the world’s biggest oil importer to buy lower volumes in coming months as prices surge over Middle East tensions.

China’s surplus crude amounted to 1.4 million barrels per day (bpd) in May, the third straight month it has been above the 1 million bpd level, according to calculations based on official data.

The price of crude oil has spiked since June 13 when Israel launched a series of air strikes against Iran, prompting drone and missile retaliation by Tehran.

While the conflict has yet to hit Iran’s crude oil production and export facilities, the heightened risks have seen Brent futures BRN1! rise almost 6% since the close on June 12 to trade around $73.58 a barrel in Asia on Tuesday.

In past occurrences of a rapid rise in crude prices, Chinese refineries have responded by trimming their imports and using stockpiled oil.

Given the lag of up to two months between when cargoes are arranged and when they are delivered, this means any pullback in China’s imports will likely only become apparent from August onwards.

While much will depend on the path of crude oil prices in coming weeks, it’s certain China has plenty of scope to lower imports and put downward pressure on prices.

China does not disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of oil processed from the total of crude available from imports and domestic output.

Refiners processed 13.92 million bpd in May, according to official data released on Monday, down from 14.12 million bpd in April and also 1.8% lower than a year earlier.

Crude imports were 10.97 million bpd in May, down from 11.69 million bpd in April, while domestic production was 4.35 million bpd, up slightly from the 4.31 million bpd in April.

Putting May imports and domestic output together gives a total of 15.32 million bpd of crude available to refiners, leaving a surplus of 1.4 million bpd once refinery throughput of 13.92 million bpd is subtracted.

For the first five months of the year, surplus crude available rose to 990,000 bpd, from 880,000 bpd for the first four months.

For the first two months of 2025, China’s refiners actually processed about 30,000 bpd more than what was available from crude imports and domestic production, the first time in 18 months that they had drawn on inventories.

But the massive surpluses in March, April and May have reversed the earlier draw.

It is worth noting that not all of this surplus crude is likely to have been added to storage, with some being processed in plants not captured by the official data.

But even allowing for gaps in the official data, it is clear that from March onwards China has been importing crude at a far higher rate than it needs to meet its domestic fuel requirements.

IMPORTS, PRICES

An indication of how price sensitive China’s refiners are is shown by the expected strong crude imports in June, with LSEG Oil Research forecasting arrivals of 11.72 million bpd.

This would be up 750,000 bpd from the official data for April, and the sharp rise reflects the declining trend for crude prices when June-arriving cargoes would have been secured.

Brent futures dropped from a six-week high of $75.47 a barrel on April 2 to a to a four-year low of $58.50 on May 5, prompting Chinese refiners to suck up cargoes.

Most of these shipments will be arriving in June and July and will likely give the illusion that China’s crude demand is recovering.

But the weak refinery processing numbers show that it’s likely the case that China is storing crude.

With the strength in prices amid Middle East tensions, it’s also likely that refiners will cut purchases, and also seek out discounted oil from sanctioned exporters Russia and Iran.

Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X.
Source: Reuters