Market Insight | Week 29

Last week saw the release of Chinese import and export data for the first half of the year. According to the National Bureau of Statistics, there was notable expansion in key commodities such as coal, iron ore and LNG, all of which saw significant increases compared to the same period last year. However, crude oil imports fell by 11% year-on-year in June, raising concerns about the health of the Chinese economy and the broader oil market. This decline in crude oil imports from the world’s largest importer points to potential weaknesses that could have far-reaching implications.

In terms of seaborne trade, the volume of crude oil traded in the first half of 2024 has decreased by 5.80% compared to the same period last year. Chinese importers have also diversified their import mix. In particular, Saudi Arabia and Russia have seen a decline in volumes destined for China, with a -5.04% and -10.61% reduction, respectively. Conversely, there has been a notable increase in imports from Brazil (13.05%), Iran (60.4%), and Iraq (7.26%).

This shift is also evident in the freight market. The TD3C route has remained at WS 50 for the past month, representing the lowest point of the year and a significant decline from the highs seen in January, when rates surpassed WS 70 and WS 90 in February. A similar trend can be observed in the case of the TD22 route, US Gulf to China, where rates are currently around $7.3 million on a lump-sum basis, representing a decline from the high of more than $10 million seen again in January and February. This illustrates the significant impact of China’s economic influence, not only on the global economy but also on the VLCC market.

Although China’s crude oil imports have reduced, the government has significantly increased its oil stockpiles. China added 1.48 million barrels per day (bpd) to its strategic and commercial reserves in June alone, with an average of 900,000 bpd going into storage in the first half of 2024. This rise in stocks is mostly due to a dip in refinery operations, which processed 14.19 million bpd in June, a 3.7% decrease from the previous year.

The trend of increasing reserves with decreasing refinery production suggests poor domestic demand and calls into question OPEC and the International Energy Agency’s (IEA) optimistic estimates of considerable rise in China’s crude oil consumption by 2024. The persistent disparity between crude oil supply and refinery processing reveals continuous weakness in the refining industry, putting doubt on the predicted significant rebound in the second half of the year.

In conclusion, China’s stockpiling and reduced refinery activity means there is doubt about a recovery in oil demand. The next few months will be crucial in determining if China’s consumption will increase, which would impact global oil markets and the freight market.