The narrowing gap between current and forward crude oil contract prices in recent weeks has been been widely attributed to two things.
OECD oil storage, the story goes, is falling and oil stored at sea is also widely believed to be declining – both paving the way for Asian demand growth to really kick in, in terms of prices. Yet it’s not completely clear cut: crude inventory volumes are mostly a pretty opaque affair, and the all-important Chinese demand for crude and products is particularly fuzzy. In fact the IEA pointed out in November that uncertainty over demand for, and storage of, refined products in China was such that it made the entire worldwide demand outlook rather challenging.
Now, Olivier Jakob of PetroMatrix makes a strong case that, far from using up its product inventories, China is awash in product – so much so that it’s exporting it.
He expects the next set of official refinery run figures, for January, will show an increase of about 2.2m b/d over last year – or 1.7m if some of the effect of January 2009′s extraordinary low is adjusted for, adding (our emphasis):
Still, this means that Chinese refinery runs are growing at double the estimated pace of Chinese oil demand growth. Actually the growth in Chinese refinery runs is at par to the oil demand growth of the total world (based on the optimistic IEA supply and demand).
In fact, says Jakob, China has turned into a net exporter of products in the past three months:
Jakob believes the IEA figures, which are calculated by adding net product imports to refinery outputs, could be oversestimating demand in the short-term. He adds:
There has been growing indications of product stockbuild in China and eroding refinery margins which would force either refinery run cuts or increased exports and this will in turn put some pressure on the calculated implied oil demand numbers. It is not that there is no oil demand growth in China but having the proper read on demand for a country that is turning from net importer to a net exporter of products is getting more complicated.
So, is the much-anticipated growth in Asian demand really proceeding at enough of a pace to justify the recent shift in markets? Or are other factors at play? Iranian sanctions threats and financial traders are a couple that have been suggested.
China, setting the world’s oil prices (FT Energy Source)