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Passed the peak? China's petroleum imports trend down: Russell

Is it time to ask whether China's crude oil imports have peaked?

The world's greatest oil importer generated record volumes in 2015, an accomplishment that appears unlikely to be repeated in 2024 offered the decline in arrivals in the very first seven months.

The marketplace agreement so far, though, is that the weakness in 2024 is short-lived and China's import of petroleum will resume an up trend as soon as the world's second-largest economy gains back momentum.

However what if there are structural changes to China's oil need that could modify the trajectory of its fuel intake moving forward?

PARADIGM SHIFT?

China's oil imports rose for 19 straight years from 2001, when they were just 1.2 million barrels daily (bpd), to 2020 when they hit 10.85 million bpd, the second-highest overall on record.

While volumes then decreased for two years, largely due to China's strict Covid-19 lockdown measures, unrefined imports struck an all-time high of 11.29 million bpd in 2023.

But in the very first seven months of 2024, arrivals was up to 10.90 million barrels daily (bpd), some 320,000 bpd listed below the level for the exact same period in 2015.

This weakness has actually likely been driven, in part, by several structural modifications changing the characteristics of China's fuel intake.

These aspects and a few other blossoming structural modifications have the prospective to curtail the increase of China's crude oil imports now and for the foreseeable future.

KEY DRIVER

Maybe the greatest factor that might weigh on crude oil imports in 2024 and the coming years is China's transition to what it calls new energy automobiles (NEVs), which include fully electric vehicles and trucks and hybrids.

Sales of automobile NEVs exceeded those with internal combustion engines (ICE) in July for the first time, according to information from the China Association of Auto Manufacturers.

Sales of guest NEVs in July were 853,000, representing 53.5% of total automobile sales of 1.595 million.

China is likewise encouraging customers to change from older, less effective vehicles to NEVs or more efficient ICE cars. This month Beijing revealed an enhanced trade-in programme that will offer payments of 20,000 yuan ($ 2,805) to anyone scrapping an older vehicle and changing it with an NEV.

. This aid is developed to get rid of more gas and diesel automobiles from the road and change them mainly with electrical cars, of which China is the world's biggest manufacturer.

LNG STRIKES DIESEL

China's diesel need is likewise softening. The U.S. Energy Information Administration reported that it dropped by 11% in June from the very same month in 2023 to 3.9 million bpd.

This is due to two factors: the slowdown in building and construction and the switch to LNG in trucks.

While it's possible that building, and China's financial activity more normally, might recover in the coming months, it's. also likely that the trend towards utilizing LNG in trucks will. accelerate.

In 2015 8% of road diesel demand, or about 220,000 bpd,. was displaced by LNG, according to a report by consultants Wood. Mackenzie.

The move to LNG trucks has been accelerated by the decline in. LNG costs at a time when diesel prices have actually been kept. reasonably high by raised oil prices, supported by output cuts. from significant exporters in the OPEC+ group.

RESTRICTING ELEMENTS

China may likewise wind back the purchase of petroleum for. tactical stockpiles in coming years, provided the marketplace view that. the country has reached or is near its preferred target for these. reserves.

China is also building fewer brand-new refineries in line with. Beijing's plan to cap capability at 20 million bpd, compared with. existing capability of around 18.5 million bpd.

Refineries are currently having a hard time to use their capacity. effectively, with only 13.91 million bpd processed in July, the. most affordable volume since October 2022.

For the first 7 months of the year, refineries processed. 14.37 million bpd, down 1.2% from the very same duration in 2023.

Another element likely to limit future imports is China's. domestic oil production, if the country succeeds in. preserving or increasing this activity.

Domestic oil production increased by 2.1% over the January to. July period to 4.28 million bpd. While this is a modest gain, it. programs that some imports are being displaced.

It must also be noted that Beijing is likely very keen to. lower crude imports, partially to cut its import costs, however likewise to. minimize dependence on imported fuel that has traditionally been. subject to sharp price swings and hazards of supply interruptions.

China would rather move quickly to using electrical energy in its. transportation system, even if a bulk of that power is generated. from more contaminating coal.

OTHER SIDE OF THE SCALE

It's clear that there are numerous elements that may limit the. need for increasing crude imports, but exist any that indicate. increased oil need?

The greatest is the capacity for China's economic development. to accelerate considerably, which would thereby increase diesel demand. for transportation, production and construction.

China's refineries could also protect greater quotas to export. improved products and lift unrefined imports to enhance fuel output.

But, significantly, the patterns that could potentially increase. crude imports are mainly speculative. The aspects limiting the. need for extra crude imports are already in place and. likely to speed up.

The opinions expressed here are those of the author, a. writer .

(source: Reuters)