China builds crude stock amidst turnaround peak, hope for new quotas

China builds crude stock amidst turnaround peak, hope for new quotas

China’s onshore crude stockpiles reflect demand weakness beyond seasonal norms.

21 May, 2024
Emma Li
Emma Li, Senior Market Analyst

China’s onshore crude inventories increased by 33mb over four consecutive weeks, ending on May 19, reaching 942 million barrels. This build-up followed two months of inventories hovering near one-year lows. The stockpiling rate was approximately 1.2mbd during this period, while seaborne crude imports slightly exceeded the year-to-date average of 10mbd, standing at 10.3mbd. This reflects a significant decline in crude throughputs, primarily due to peak seasonal refinery turnarounds.

Historically, Chinese onshore crude inventories fluctuate within a narrow window between 920mb and 945mb around mid-May each year since 2019, in line with the government mandate to maintain a 90-day crude oil coverage for the country. 

The current 942mb in aboveground oil tanks equate to 90 days of seaborne crude imports in 2023, while the government-controlled underground caves may contain another 2 weeks worth of imports.

China onshore crude inventories (aboveground tanks only, mb)

Oil majors’ stockpiling falls behind capacity expansion

Crude stockpiling efforts by the top three Chinese oil refiners—Sinopec, PetroChina, and CNOOC—appear to lag behind tank storage expansion. Since 2022, these Big Three have added over 120mb of tank storage capacity, primarily in coastal areas near existing commercial or SPR storage farms, and increased their crude stock by 85mb by the end of 2023.

While CNOOC has steadily filled its newly built 31.5mb storage facility at port of Dongying in eastern Shandong province with discounted Russian Far East ESPO blend crude since November 2023, PetroChina and Sinopec have not notably increased crude stocks at any storage farms since then. The recent stock build across Big-3-controlled tanks is likely a seasonal trend during peak refinery turnarounds rather than a strategic move to extend oil cover.

Oil majors’ stockbuilds may continue from May to July without a significant uptick in crude imports, as recent crude prices holding above $80/b and a backwardated market structure discourage spot purchases.

“Big-3” controlled crude stock (mb) and tank utilisation (%)

Iranian crude builds in commercial tanks targeting teapots

Iranian crude imports into Liaoning province in North China have surged to multi-year highs recently, with at least 16mb discharged via ports of Dalian and Yingkou over the four weeks ending on May 17, as nearby Jincheng Petrochemical, a newly restructured independent refiner, is aiming for 300kbd of crude oil import quotas for its three plants with a combined processing capacity of 400kbd.

The former owners, Bora Group and Panjin Haoye Petrochemical, lost their import quotas in 2021 following a government investigation into fuel tax evasion. Sinopec was then assigned the oil supplier to the plants, and the crude imports were not subject to quota management.

If Jincheng secures quotas to independently import crude feedstocks, the refinery will likely import crude from Russia, Iran, or Venezuela, the discounted grades that are typically purchased by Shandong teapot refiners. This has led to a 10mb stock build in commercial storages at Dalian Changxing Island and the Port of Yingkou during the four weeks.

Liaoning commercial crude stock inventories by selected storage terminal (mb)

Meanwhile, Shandong’s private commercial crude stocks have also risen in the past four weeks, despite weak crude imports, as more teapot refiners have commenced maintenance due to bearish refining margins.

China has at least 600mb of spare tank capacity as of May 19. New storage facilities, including Yulong Petrochemical’s 12.6mb storage farm, are expected to be operational in the coming months.

While recent new clean fuel export quotas will support China’s crude imports to a limited extent, lower domestic demand amid the slower-than-expected economic recovery may hamper China’s crude stockpiling efforts. The robust stockpiling seen from May to July last year may not be repeated this year unless Beijing mandates the oil majors to extend their crude reserves.

Emma Li
Senior Market Analyst
Emma Li