China’s demand for oil in June was down MoM on either measure of implied demand. Under the crude side methodology, which typically yields a higher implied demand and is calculated as domestic production plus net crude and product imports, implied demand dropped 8.3% MoM to 9.47mmb/d. The refinery side calculation (refinery throughput plus net product imports) implies a 3.7% fall in demand MoM to 8.96mmb/d. The difference suggests a build in strategic inventory against a backdrop of restrained demand growth. The refinery side calculation demonstrates the potential downside risk, yielding a YTD growth rate in implied demand of just 2.0% YoY, well below the 3.8-4.3% range forecast by the IEA, OPEC and EIA in their July oil market reports.
Inventory might have risen over 100 mmbbl in the YTD, assuming the difference between the two demand methodologies reflects stockbuilding. That would be equivalent to a very significant build of 11 days forward cover, we estimate.
Crude imports from Iran were up 0.1mmb/d (+21%) MoM, exceeding the 0.6mmb/d mark for only the fifth time on record and have more than doubled since March. That is in line with our view that the US granted to China a relatively soft 'significant reduction' waiver and that it is likely that new US sanctions will impact Iranian supply to the market by less than the market expects. While the oil market continues to be oversupplied, we expect it to remain liable to downside price risks.