5 September 2024 Kpler
Market bearishness has been driven, at least in part, by struggling Chinese oil demand. In this update, we take a look at the specifics.
Summary
A largely unimpressive demand environment, namely due to issues in China, has weighed on bullish price impulses. In Q3, we estimate Chinese jet (+26 kbd y/y), gasoline (+80 kbd y/y), and gasoil/diesel (+87 kbd y/y) consumption will struggle to find much growth at all.
The lack of product demand growth helps explain, at least in part, the dramatic underperformance in Chinese refinery runs. We forecast throughput will finish Q3 at just 15.2 Mbd, marking a decline of roughly 830 kbd against year-earlier levels. Runs will pick up in Q4 to 15.5 Mbd but will remain slightly under levels from the same period a year ago.
The impacts of refinery run underperformance are having a material impact on Chinese seaborne crude imports. On a 3-month moving average basis, Chinese oil offtakes are holding at just 10.4 Mbd, down from 10.8 Mbd in June. Arrivals in July (-820 kbd y/y) and month-to-date through August (-800 kbd) are both broadly below year earlier levels.
Brent speculative positioning certainly appears to be responding to the issues in China. At present, net longs on the Brent contract are holding just above the 52-week low in what has been a second cycle of bearishness that originally took hold in early May.
Despite what is typically the seasonal low point for oil market supply shortages, oil prices have struggled to find much traction in recent weeks. After trading above $85/bbl through June and half of July, Brent spot prices have since traded into a range between $76 and $82/bbl. Part of this is the result of a reevaluation in the geopolitical risk premium. Traders have become increasingly less concerned about an all-out war between Israel and Iran. Oil exports out of Russia have also performed better than expected through July and August. Nonetheless, the issues in Libya, which have effectively removed 1 Mbd from the market, could provide some upward pressure to oil prices in the coming weeks. For a deep dive into these supply-side dynamics, be sure to read our latest update.
Monthly Chinese Seaborne Oil Imports (kbd, top) and Y/Y Delta (kbd, bottom)
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