China’s Crude Import Predicted to Slump in 2017

Private refiners to be constrained by a tighter license regime by Chinese government

China, which surpassed the US as the biggest importer of crude oil in September 2016, is expected to witness a slowdown in crude imports in 2017, according to a Bloomberg survey of analysts including FGE and Energy Aspects Ltd, and as reported by Bloomberg on December 07th, 2016. Bloomberg data show that the growth in crude imports by China, the second largest consumer after the U.S., will probably plunge by more than 60% in 2017. This is mainly because private refiners, known as teapots, are expected to be constrained by a tighter license regime by the Chinese government and increased scrutiny on their taxes. At the same time, the current space available for stockpiles may run out.

On November 30th, 2016, the Organization of Petroleum Exporting Countries (OPEC) closed a major deal among member nations to cut oil production in an effort to prop up global crude oil prices and normalize record global oil inventories. While OPEC’s deal to curb output may help erode a glut and lift prices, Chinese imports and demand for crude oil remains a key driver to stoke crude oil prices, which are currently hovering around $50 per barrel.


China’s September 2016 crude imports rose 18% Y-o-Y to 33.06 million tons, or 8.04 million barrels per day (bpd) on a daily basis, China’s Customs General Administration data showed. The buying outpaced the US four-week average assessed by the US Energy Information Administration of 7.98 million bpd at the end of September 2016. During January-September 2016, China’s import volumes rose 14% to 284 million tons, or 7.55 million bpd.

The record crude imports are a reflection of China’s dwindling domestic crude production. In August 2016, China’s crude production fell 10% Y-o-Y to 16.54 million tons, or 3.9 million bpd. During January-August 2016, China’s crude production was down 5.7% compared to the year-ago same period. Stockpiling also drove China to increase its foreign crude buying in September 2016, after a 7.5 million-barrel storage facility in China’s northeastern Qingdao Port was recently opened. An additional 19 million barrels of storage also came online on Aoshan Island, which received two shipments in September 2016.

Source: Chinese government data, Bloomberg
Source: Chinese government data, Bloomberg

Restriction of import quotas in 2017

China’s Customs General Administration data shows that China’s crude imports during January-October 2016 rose 14% to 7.5 million bpd. However, in 2017, China’s crude imports are expected to grow by just 4.8% compared to 2016. So far in 2016, imports increased as the Chinese government starting giving licenses to teapots to import crude on their own without relying on state-owned oil majors including PetroChina Co. and Sinopec Shanghai Petrochemical Co. for supplies.

As of October 2016, teapots, which account for a third of China’s crude processing capacity, have imported 30 million tons of crude oil. A total of 17 private refiners have been granted a combined import quota of 67.05 million tons a year, or 1.35 million barrels a day, so far in 2016. A dozen others, seeking a total of 23 million tons in allocations, are still in the process of being approved by the Chinese government.

However, in 2017, the amount of incremental new quotas allocated for private refiners may drop significantly from 2016, because some of the teapots are falling behind on their commitment to eliminate outdated units and a few are trading quotas instead of utilizing them. Moreover, increased scrutiny over taxes by Chinese authorities could constrain demand from the private refiners. Crude imports may also slow because port and pipeline infrastructure has not developed as fast as oil purchases.

Government to slow new quota approvals

The Chinese government has signaled its intention to slow new quota approvals as it assesses whether the teapots closed outdated refining units or built storage facilities. Concern about teapots’ creditworthiness and lack of experience in international trade remain the key challenges, while the implementation of higher fuel-quality standards could force some teapots to shut down operations.

Crude stockpiling hits all-time high

China stocked about 724,000 bpd of crude during January-October 2016, the highest level since 2004, according to Bloomberg. China stored a total of 31.97 million tons of oil in its strategic petroleum reserve as of early 2016, equivalent to about 234 million barrels, according to the National Bureau of Statistics. Some of those volumes are under commercial storage facilities. China built up a total of about 400 million barrels in inventories by mid-2016, compared to a target of 511 million barrels. However, crude stockpiling may decline drastically in 2017 due to slow construction of new storage areas and limited space for future stockpiling.

Going into the New Year, economists opine that since China is the largest buyer of most bulk commodities, weaker imports could sound the death knell for an over-supplied market that is dependent on Chinese demand to ease the glut. Even as China chases its annual growth target of 6.5% to 7.0%, the only hope is that a resurgence of demand from the nation would re-balance markets in the coming months.

Be the first to comment

Leave a Reply

Your email address will not be published.