China has increased its oil purchases as an expected recovery in the country’s crude consumption accelerates after the end of its strict Covid Zero policy, raising optimism on the outlook for global demand.
The buying has been led by Unipec, the trading arm of refining giant Sinopec, which took about 10 million barrels from the United Arab Emirates for loading in April, according to traders who buy and sell such shipments. The company has also taken long-haul cargo from West Africa, they said.
There is a growing chorus of bullish calls that China’s recovery will lead to a rebound in oil prices, with some predicting that Brent will once again break above $100 a barrel later this year. Other refineries, such as China National Chemical Corp. and Rongsheng Petrochemical Co., have also picked up cargoes, including from the US, in the early part of this month’s spot market cycle.
Refiners are stocking up in anticipation of a recovery in demand and would rather be oversupplied than undersupplied, said Michal Meidan, director of the China Energy Research Program at the Institute for Energy Studies ‘Oxford. Processors were caught off guard with the strength of gasoline demand after Covid-19 restrictions were eased, he added.
Unipec’s latest purchases follow a string of purchases last month, and traders said it could signal a further increase in strike rates or even crude stockpiles. State processors are also looking for cheaper Russian oil, although refiners are expected to maintain a strong appetite for Persian Gulf grades, according to Energy Aspects Ltd. analyst Jianan Sun.
“Expectations of a strong domestic recovery and trade replenishment could further boost Chinese purchases,” Sun said.
Goods bought in this trade cycle, which usually lasts about two weeks, will mostly arrive in May, roughly in line with expectations of a sharp increase in consumption from the second quarter.
State processors raised processing rates in the week to February 9 to the highest level since early December, according to OilChem. Private refiners also increased production with better refining margins, the industry consultant said.
According to FGE analyst Mia Geng, refiners are likely to raise processing rates “more aggressively” in March and April. The industry consultant estimates that Chinese domestic demand will improve by 500,000 barrels per day in the second and third quarters, compared with the first three months of 2023.
A key indicator of Asian demand for Middle Eastern barrels — Oman’s premium to Dubai swaps — strengthened this week to the highest level in nearly three months, according to data compiled by Bloomberg. The lag in Dubai’s temporary indexes has also consolidated over the past two weeks.
The market is looking for a sustained recovery in Chinese demand and a strong pick-up in travel during the Lunar New Year holiday in late January added to optimism in the outlook. China will hold its annual session of the National People’s Congress in Beijing from March 5, which could see the government unveil stimulus packages that could underpin higher energy consumption.
