China, the world’s largest crude oil importer, has resumed adding to its crude oil inventories in October. This comes as refinery processing declined from a record high and imports saw a slight increase compared to September, according to Reuters.

In October, China added approximately 560,000 barrels per day (bbl/d) to its crude oil inventories. This calculation is based on official data for imports, domestic production, and refinery throughput.

The country does not disclose the volumes of crude flowing into or out of strategic and commercial stockpiles. However, an estimate can be made by deducting the amount of crude processed from the total available from imports and domestic output.

In September, Chinese refiners dipped into storage tanks, processing 240,000 bbl/d more than what was available from imports and domestic output. This marked a reversal from the previous months, when inventories were being added. In fact, refiners have drawn on inventories in three months so far in 2023, namely April, July, and September. However, the remaining seven months up to October have seen additions to stockpiles that more than offset the draws.

China’s refiners processed 63.93 million metric tons of crude in October, equivalent to 15.05 million bbl/d. This figure represents a drop from September’s record high of 15.48 million bbl/d, as domestic margins contracted amid slowing demand growth and exports eased as refiners bumped up against quota limits.

Crude imports in October amounted to 48.97 million metric tons, while domestic output stood at 17.33 million metric tons. Combining these figures gives a total of 66.3 million metric tons, equivalent to 15.61 million bbl/d. Subtracting the refinery throughput from this total leaves a surplus of 560,000 bbl/d to be put into commercial or strategic reserves.

China’s pattern of crude oil imports and refinery processing in 2023 has been to buy more crude when prices were low and boost refining when domestic demand was recovering and export quotas were available. This strategy allows Chinese refiners to take advantage of high margins for fuels in Asia, particularly diesel.

Conversely, when crude prices have rallied, as they did from July onwards after top exporter and de facto OPEC+ leader Saudi Arabia cut an additional 1 million bbl/d of output, China has tended to trim imports in the subsequent months.

According to Reuters, this move suggests that Chinese refiners are willing to use their ample stockpiles to mitigate high crude oil costs.

The flows into storage tanks in 2023 raise questions about optimistic forecasts regarding Chinese demand. The International Energy Agency (IEA) has forecast that China’s demand will rise by 1.8 million bbl/d in 2023. However, the flows into storage suggest a more cautious outlook. China’s imports for the first 10 months of the year are 11.36 million bbl/d, which is 1.19 million bbl/d higher than the total for 2022. To get a truer picture of China’s domestic consumption, the flows into storage tanks and the increase in refined fuel exports should be taken into account.

Refined product exports from China have been on the rise, increasing by 33.2% in the first 10 months of the year to reach 53.09 million metric tons. This is equivalent to approximately 1.40 million bbl/d, calculated using the BP Plc conversion rate.

In comparison, refined fuel exports in 2022 were 1.18 million bbl/d. This implies that exports have increased by 220,000 bbl/d in the first 10 months of 2023. When the increase in product exports is added to the flows into storage tanks, the combined total amounts to 900,000 bbl/d in the first 10 months of the year. Subtracting this from the increase in crude imports indicates that actual domestic consumption is only 290,000 bbl/d higher than in 2022.