China's crude stockpile fell sharply in September, as a result of lower imports and increased refinery processing.

According to calculations based upon official data, China's crude surplus in September was 570,000 barrels a day (bpd), down from 1,01 million bpd during August.

China can smooth out oil price volatility by reducing crude imports.

Imports fell to 11.5 millions bpd in September, the lowest since January. Refiners reduced purchases following a spike in prices in June, during the short military conflict between Israel & Iran.

Cargoes arriving at the end of September were largely arranged when crude oil prices were high. Brent futures hit a six-month peak of $81.40 per barrel on June 23, a record.

China does not reveal the volume of crude oil flowing in or out of strategic and commercial stocks, but it can be estimated by subtracting the amount processed from total crude produced domestically and imported.

According to data released by the government on Monday, September's domestic production was 4,32 million barrels per day. This gives a total of 15,82 million barrels per day available to refiners, including imports and local output.

According to the National Bureau of Statistics, refiners processed 15,25 million barrels per day in September. This is up from 14,94 million barrels per day in August.

This means there was an excess of 570,000 barrels per day of crude oil in September.

Not all the excess crude is likely to have gone into storage. Some of it was processed in plants that are not included in the official data.

Even if you ignore the gaps in official data, there is no doubt that China began importing crude oil at a rate far greater than what it required to meet its domestic fuel needs.

The average surplus of crude oil in China for the first nine-month period of the year was 930,000 barrels per day. However, due to the lower level of surplus in September, the total year-to date number has dropped from 990,000.

The surplus was built after refiners drew on their inventories for the first time in January and Feburary, when processing rates were higher than available crude by approximately 30,000 bpd. It was the first since September 2023 when throughput exceeded crude imports and domestic production.

Brent futures reached their highest level of this year, $82.63 per barrel on 15 January. They had steadily risen from levels of around $70 at the beginning of December.

More Flows of Storage

Market participants are wondering if China will increase its crude oil stockpiles in response to the falling trend of oil prices.

Brent crude fell to a six month low of $60.14 per barrel on October 17, and traded at $61.12 a barge in Asia on Sunday.

The price of crude oil is likely to be low enough to encourage Chinese refiners continue to build their stocks.

There are also other factors in play, such as the mounting pressure being put on China and India by the West to reduce the amount of Russian crude oil that they purchase.

Even if China reduces its imports of crude oil from Russia, it is likely to be able to source enough crude from other sources in order for the country's stockpiles not decrease.

The next step will be determined by the prices.

History suggests that if oil prices continue to fall as the eight members OPEC+ finish their voluntary production reductions, Chinese refiners are likely to move quickly to absorb any surplus.

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(source: Reuters)