China’s crude oil demand may grow by 5% in 2013 to 10.1 mb/d (YTD March: 5.4%), driven by a steady yet moderate economic recovery and refinery expansions, stated London based Barclays in its recent market analysis.China is set to add 690 thousand b/d of CDU capacity and 524 thousand b/d of secondary capacity in 2013, which would provide an additional layer of support for crude demand in the country.
Also the shift from fuel oil to crude oil among teapot refineries in China is also likely to provide additional support for crude oil over the coming months.
This has already started feeding through with the latest implied fuel oil demand reading pegged at 754 thousand b/d (showing a flat y/y growth of 0.6%, compared to the average 31% growth seen over the Aug-12 to Feb-13 period).
China’s implied oil demand indications to go through a soft patch over March and April (weighed down by refinery maintenance and ample inventories during this period), Barclays expects Chinese crude demand to pick up towards the tail end of Q2 and early Q3 once the turnaround season is over.
Demand for refined oil products, however, will start picking up earlier (from late March), with diesel demand in particular being supported by the start of the spring ploughing season.
Also, truck sales and traffic indicators suggest a healthy appetite for diesel materialising over this quarter. While headline industrial production growth in March has posted a downside surprise for the second month in a row, infrastructure investment remains robust, offsetting slow property and manufacturing growth.
Implied diesel demand growth rebounded into positive territory over March, pegged at 3.48 mb/d (and growing y/y by 1.8%), compared to the average decline of 1.7% seen over the December to February period.
Additionally, in terms of demand growth, the bank expects gasoline to outperform diesel on the back of strong passenger vehicle sales, and a forthcoming tax change that will make gasoline blend stocks, such as aromatics and MTBE, more expensive is also expected to provide support to the implied gasoline demand growth numbers. As these consumption patterns are over the turnaround period (March-April), they should help trim oil product inventories.
Together with the favourable retail price adjusting system supporting relatively healthier margins, this is likely to support higher refinery utilisation rates, leading to a rebound once refineries return over the tail-end of Q2.
In line with this view, implied gasoline demand continued to grow at a double-digit pace over March, (pegged at 2.1 mb/d and expanding y/y by 18.7%).
Among the other products, jet fuel demand continues to hold steady at 411 thousand b/d close to levels seen in February where absolute consumption was boosted by an increase in air traffic during the Chinese New Year festival. Domestic revenue passenger kilometres (RPKs) in China have grown by 9.5% y/y over January and February.
Petrochemical demand was the weakest element across the product complex, with the implied consumption figure dropping slightly below 3 mb/d. The decline rate has accelerated to 4% from the 1% seen over February, and remains in a stark contrast to the double-digit growth seen over Q4 last year.
“We expect these indications to improve towards the tail-end of Q2 as manufacturing picks up. Also, the relative prices of petchem feed stocks at present also help incentive consumption, in our view. We keep a close eye on improvements in petchem demand for the first signs of the healthy rebound we expect in consumption,” Barclays noted.
Source: Barclays