China’s crude imports rebound amid improving domestic demand

China’s seaborne crude imports surged 11% m-o-m in August, reaching a 10-month high of 10.3mbd. This rebound occurred as refiners boosted run rates to meet the demand seasonal peak expected around September. Chinese oil majors increased their baseline imports from the Middle East (excluding Iran), Russia, and West Africa, with Iraqi imports leading the gains, up by 40% m-o-m. Additionally, Russian crude imports by sea rose by 15%, despite private refiners in East China maintaining stable import volumes.

China’s seaborne crude imports by origin region (mbd)

Besides this surge in crude imports, China's onshore crude inventories remained stagnant throughout the month. According to analysis derived from Vortexa flow and inventory data, China's implied refinery runs rebounded to a 6-month high of 15.3 mbd. However, the y-o-y contraction widened by 1 mbd, compared to an average of 400kbd in the previous 7 months. With 2023 serving as a strong baseline following China’s post-pandemic reopening, the country’s crude demand is expected to fluctuate between the three-year average and the 2023 peak for the remainder of the year. New refining capacities in Shandong, which are set to start trial operations in September, are unlikely to significantly impact this trend, as they are not expected to receive product export quotas. As a result, these new capacities could further pressure already weak margins in the Shandong region.

China’s implied refinery runs (mbd) - net seaborne imports, onshore crude inventories

Private refiners turn to Iranian oil for better margins

China's imports of Iranian crude, condensates and residual fuel oils also saw a significant rebound in August, hitting a 10-month high of over 1.5 mbd. Private refiners increasingly turned to discounted Iranian supply to improve refining margins, especially after discounts deepened in July. This resulted in record Iranian crude imports into the Shandong and Jiangsu provinces, the core regions for private refiners in East China. August imports into these regions exceeded 1.2 mbd, marking a 25% increase compared to the average daily rate over the previous seven months. Overall, crude imports into East China held steady at 3.5 mbd, aligning with YTD levels.

China’s Iranian crude/condensate/fuel oil imports by grade (kbd)

Unlike Chinese oil majors that can sell refined products abroad, private refiners faced multi-year low run rates in July due to weak domestic demand. As more private refiners in East China continue to rely on discounted Iranian oil to bolster margins, strong Iranian crude imports are expected to persist for the remainder of the year, although a seasonal slowdown during winter may limit further increases. With the new private Yulong refinery also potentially seeking discounted crude, the prolonged cyclical slowdown in China's economy could further constrain upside potential for other crude producers in the near term.