China’s crude imports rose to a record high 5.96mmb/d in May (up 11% MoM), reversing the trend of recent months. That was an 18% YoY rise and on a YTD basis, crude imports are up 10% YoY. This led to a sharp rise in crude side implied demand, up 6.3% MoM and 10.7% YoY for May, calculated as domestic production plus net crude and product imports. The refinery side calculation, however, suggests that implied demand rose only marginally, up 1.1% MoM and 0.8% YoY. That suggests to us a significant build in strategic inventory but fairly restrained underlying demand growth.
On a YTD basis, China’s YoY demand has grown 4.0%, we estimate, based on the average of the two methodologies. That puts it dead in the centre of the 3.6%-4.4% range currently forecast by the IEA, OPEC and EIA in their latest oil market monthly reports.
US Secretary of State Hillary Clinton was quoted in the media on Wednesday stating that, based on the latest data, China was reducing its purchases of Iranian crude oil. Our analysis, based on data originating from the China Customs Information Centre, suggests otherwise. On a YoY basis, Chinese imports of Iranian crude did indeed fall 2% in May and are down 24% YoY for the YTD. However, it is widely believed that low imports in the spring reflected commercial issues between China and Iran that have been resolved and imports are now rising sharply; imports of Iranian crude increased 35% MoM. The Secretary of State’s comments might be a precursor to granting China a ‘significant reduction’ waiver, as it has done to all other major importers of Iranian petroleum. Should the US do so, that would reduce the potential impact of the new US sanctions, in our view.