China's crude stockpile flow dropped dramatically in September, as lower imports combined with increased refinery processing reduced the excess that was available to store. China's crude oil surplus was 570,000 barrels a day (bpd), down from 1,01 million bpd, in September. Calculations based on data official indicate that the number of barrels a day dropped to 570,000 bpd. China's ability to smooth out oil price volatility is demonstrated by the decline in crude imports, and an increase in refinery output. In September, imports fell to the lowest level in over a year, at 11.5 million barrels per day. This was due to refiners cutting purchases following the price spike in June, during the short military conflict between Israel, Iran, and Israel.

Cargoes arriving at the end of September were largely arranged when crude prices reached a 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 that enters or leaves its strategic and commercial stocks, but it can be estimated by subtracting the amount processed from the total crude from both imports and domestic production.

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.

It means there was an excess of 570,000 barrels per day of crude oil in September. Not all the excess crude has been stored, as some was processed in plants that were 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 surpassed the amount of crude imported and produced domestically.

Brent futures reached their highest level of this year, $82.63, on January 15 after steadily rising from levels of around $70 at the beginning of December.

MORE STORAGE FLOWS A question that the market must answer is whether China will increase its crude 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 on Monday in Asia. This price is low enough for Chinese refiners, who are likely to keep building up their stocks.

Other factors are at 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 in order to pressure Moscow into negotiating an end to the Ukraine war. China may be able to source enough crude oil from other sources even if its imports of Russian crude oil are reduced.

The next step will depend on the price. History suggests that if oil prices continue to fall as OPEC+ members end their voluntary production reductions, Chinese refiners may move quickly to absorb any surplus.

You like this column? Check out Open Interest, your new essential source of global financial commentary. ROI provides data-driven, thought-provoking analysis on everything from soybeans to swap rates. The markets are changing faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, X.

These are the views of the columnist, an author for.

(source: Reuters)