Due to the rising demand for fuel amid the removal of COVID restrictions, China is anticipated to import a record amount of crude oil in 2023.
The possibility of strong demand from the world’s largest importer will be good news for the oil market, which has already benefited from supply curbs by OPEC+ producers and western sanctions on Russian shipments amid the Ukraine war.
According to analysts from four industry consultancies, including Wood Mackenzie, FGE, Energy Aspects, and S&P Global Commodity Insight, China’s crude imports could increase by up to 1 million barrels per day (bpd) in 2023, breaking the previous record of 10.8 million bpd, and reversing the decline since 2020.
The International Energy Agency’s most recent forecast also aligns with the above estimates.
According to Sun Jianan, an analyst at Energy Aspects, the demand growth will be driven mainly by the consumption of gasoline and jet fuel, which will account for 50% and 30%, respectively.
By the 2023 end, the expert predicted that jet fuel consumption would have recovered 90% of its pre-COVID levels.
Due to the longer recovery time for China’s manufacturing and real estate sectors, Sun, along with FGE analyst Mia Geng informed Reuters that the demand for diesel, a crucial industrial and transportation fuel and petrochemical feedstock naphtha, might see slow growth.
An infrastructure expansion and economic stimulus in 2023 will pave the way for a strong comeback in diesel consumption, according to Wang Zhuwei, an analyst at S&P Global Commodities Intelligence.
The four consultancies predicted that Chinese refineries would raise crude throughput by 850,000 to 1.2 million bpd, or between 6% and 9%, due to increased domestic demand and attractive export markets.
In 2022, China’s refineries posted their first annual decline in throughput since 2001.
Chinese consultancy Longzhong told Reuters that state-run refineries were lifting throughput during the first week of February by 5.5% from January to an average of 74.5% of capacity.
“We’ve been trying to maximize our operations in January and February, as margins have improved on lower crude cost and sharply rebounding gasoline sales,” a Beijing-based state oil official said.
In line with the general trend, Unipec, the trading arm of Asia’s largest refiner Sinopec, purchased at least 8.5 million barrels of Abu Dhabi Upper Zakum oil in February 2023, continuing its buying binge.
According to analysts, refiners would also be encouraged to increase runs to maintain profitable export shipments and deliver more feedstocks to the petrochemical industry, apart from satisfying expanding domestic demand.
Two new refineries, Guangdong Petrochemical and Jiangsu Shenghong Petrochemical, owned by PetroChina, with a combined capacity of 520,000 bpd, are anticipated to start operating commercially in the upcoming months.
Around the 2023 end, a third greenfield refinery, the 400,000 bpd Shandong Yulong Petrochemical facility, may start importing crude for potential test runs, as per reports.
However, analysts gave some justifications for being wary about demand projections.
Although pent-up demand is being released due to households conserving more money during the COVID lockdowns, Lin Yitian, a Woodmac analyst, cautioned that people might keep their economic scepticism short-lived.
The export industry of China would be under pressure from external headwinds if the outlook for the world economy were to be wrong.
Other dangers, according to analysts, included the potential for a resurgence of COVID infections and ambiguity surrounding China’s fuel export policy.