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China's surplus crude oil relieved in October, however this is still bearish: Russell

China's petroleum surplus nearly cut in half in October, but this was a further sign of weakness as both imports and refinery runs dipped.

The volume of excess crude was about 550,000 barrels per day ( bpd) in October, according to estimations based upon authorities data, down from 930,000 bpd in September.

In more typical circumstances, a decrease in crude flowing into stocks may be deemed a sign that demand was picking up, but so far 2024 is far from a typical year for China's oil sector.

The dynamic at play in October was that unrefined imports fell by more than refinery throughput, hence cutting the amount of extra crude.

China, the world's most significant unrefined importer, does not reveal the volumes of oil flowing into or out of strategic and industrial stockpiles, but a price quote can be made by deducting the quantity of crude processed from the total of unrefined offered from imports and domestic output.

Domestic production in October was 4.04 million bpd, up 2.5%. from the same month last year, according to information from the. National Bureau of Data, while imports were 10.53 million. bpd.

Putting domestic output together with imports offers a. combined total of 14.57 million bpd available for processing in. October, down from 15.22 million bpd in September.

Refinery throughput was 14.02 million bpd in October, down. from 14.29 million in September.

This means that refineries processed 550,000 bpd less than. what was readily available from the combined total of imports and. domestic production.

This was lower than the surplus of 930,000 bpd from. September, and the drop in the October figure sufficed to. lower the excess crude for the first 10 months to 1.05 million. bpd from 1.10 million bpd over the first three quarters.

It's worth keeping in mind that not all of this surplus crude is. likely to have been added to storage, with some being processed. in plants not caught by the main information.

But even permitting spaces in the main data, it's most likely. that China has been importing crude at a far greater rate than it. requirements to satisfy its domestic fuel requirements.

REVENUE FIGHT

There are some short-term factors that have actually led to. lower refinery processing, with smaller sized, independent refineries. having a hard time to make revenues amidst soft demand for diesel and. gasoline.

This has resulted in some of them lowering operating rates, with. data from consultancy Sublime China Information revealing these. plants, mainly located in the refining center of Shandong province,. were running at 58.7% of their capability by late October, down. from 77% a year previously.

China's managed fuel prices might garner a few of the blame. for cutting margins for refiners, which need to buy crude at. international rates.

It's likewise the case that the world's second-largest economy. is battling to build growth momentum, with Beijing's stimulus. procedures underwhelming market watchers and yet stopping working to. reverse the sag in the crucial home sector.

But there is also a structural shift underway in China's. petroleum need, with the quick uptake of what Beijing terms. brand-new energy vehicles, which include complete electrical cars and. hybrids, cutting into fuel need.

A switch to trucks powered by melted natural gas has cut. diesel demand, and the ongoing advancement of battery-powered. heavy cars indicates this pattern might accelerate in coming years.

The move to LNG is mainly driven by price as it is less expensive. than diesel, while also providing some environmental advantages.

For light cars, federal government aids for customers to. switch to brand-new energy cars and trucks have actually improved sales, but China's. competitive benefit in making these types of automobiles implies. they have actually become less expensive to own and run than their gasoline. equivalents.

China's soft economy and its push to cut using lorries. using items originated from crude oil has implied that. expectations for strong need growth that were common among. forecasters previously this year have been overly optimistic.

The Organization of the Petroleum Exporting Countries (OPEC). was amongst the most bullish, forecasting in July that China's oil. demand development would increase by 760,000 bpd in 2024.

The group cut this back to 580,000 bpd in its October. report, but given that crude oil imports are down 420,000 bpd in. the first 10 months of 2024 from the same duration last year, even. this minimized figure looks method too high.

Include additional threats to China's economy from a capacity. trade war with the United States when Donald Trump begins his. second term as president in January, and it's a difficulty to. discover anything bullish in China's oil outlook.

The views revealed here are those of the author, a columnist. .

(source: Reuters)