Asia's crude oil imports recover on European winter demand hopes

It is likely that China will boost exports of refined fuels, which may lead to some recovery in its crude oil imports

Asia's imports of crude oil recovered in September, but the increase is likely more a reflection of expectations of improved product demand from Europe over the coming winter rather than a sign of economic strength.

The world's top-importing region brought in 26.58 million barrels per day (bpd) of crude in September, up from 24.90 million bpd in August, according to data compiled by Refinitiv Oil Research.

It was the third-highest month for imports this year and the most since May's 26.62 million bpd.

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But a breakdown of the September imports shows that just two countries accounted for 85 per cent of the increase from August and this was mainly because they increased refinery utilisation after maintenance periods.

China, the world's biggest oil importer, saw arrivals of 10.19 million bpd, up 650,000 bpd from August, and the strongest month since May.

Singapore saw imports rise to 1.57 million bpd in September, up from 790,000 bpd in August, when refinery processing rates were just 47.7 per cent of capacity.

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Put together, the increase in September imports for China and Singapore was 1.43 million bpd, which is 85 per cent of the gain of 1.68 million bpd from August's total for the whole of Asia.

Other major Asian crude importers showed relatively steady imports for September, with India, the continent's second-largest buyer, landing 4.11 million bpd, slightly down from 4.15 million bpd in August.

Japan imported 3.14 million bpd in September, up from August's 2.94 million bpd, while South Korea imported 2.70 million bpd, down from 3.05 million.

The overall increase in Asia's crude oil imports in September comes as the region's refiners build inventories ahead of the northern winter, and as more plants return from maintenance.

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There are expectations that Europe may call on Asia for refined products, especially diesel, during winter as the continent plans to stop imports of Russian crude in December, and of products two months later.

Europe's product imports from outside the region were 4.6 million tonnes in September, which Refinitiv said was a two-year high.

Of that 4.6 million tonnes, 1.64 million came from Russia, which is classed as outside Europe by Refinitiv.

Assuming Europe goes ahead with its import bans on Russian crude and products, it means the continent will likely be seeking around 1.6 million tonnes a month from elsewhere, with Asia, and particularly China, best placed to provide extra fuel given the continent's surplus refining capacity.

China has boosted its export quotas for the rest of the year by 15 million tonnes, but it's unlikely that actual exports will reach that level given shipping constraints.

Nonetheless, it's likely that China will boost exports of refined fuels, which may lead to some recovery in its crude oil imports.

But it's also possible that China uses up crude inventories built up this year to boost product exports, with the country having added about 1.46 million bpd to stockpiles in the first eight months of 2022, as refinery processing fell by more than imports.

Boosting product exports but not crude imports would provide an economic boost to China, which is struggling to fire up its economy after a series of strict Covid-19 lockdowns and funding issues in its key property construction sector.

It would also allow Beijing to send a message to the OPEC+ group of exporters that China is displeased with last week's announcement by the group to cut 2 million bpd from their output quotas, a move widely seen as an attempt to keep oil prices above $90 a barrel even as the global economy heads towards a likely recession.

Overall, the gain in Asia's crude imports in September is unlikely to be the start of a sustained run of strong import numbers.

The looming economic slowdown and the impact of the strong US dollar, which is keeping retail prices close to record highs in many Asian countries, is probably more of a drag on demand than any boost from increased shipments of products to Europe.