China Draws on Crude Stocks Amid High Refining Rates

China, the world's largest crude importer, drew on its strategic and commercial crude oil reserves in August, marking the third such instance in the past four months. This activity occurred as the nation's refinery throughput exceeded the available crude from imports and domestic production, according to calculations based on official data reported by MarineLink / Maritime Reporter.

Refineries in China processed approximately 640,000 barrels per day (bpd) more than the supply available to them from imports and domestic output. This trend suggests a reliance on existing inventories to meet processing demands.

China's crude oil purchases had previously been reduced to a decade low following disruptions to Middle East supplies. These disruptions stemmed from geopolitical events after the US and Israel reportedly attacked Iran on 28 February, leading to increased oil prices. In response, China had also lowered refinery run rates to levels sufficient for domestic demand, but not high enough to support refined fuel exports, which also saw a sharp decline in the months following the Iran conflict.

Inventory Utilisation Details

While China does not publicly disclose the specific volumes of crude entering or exiting its stockpiles, estimates can be derived by comparing processed oil volumes against total available crude from imports and domestic production. In August, imports stood at 8.93 million bpd, with domestic production contributing 4.34 million bpd, resulting in a total available supply of 13.27 million bpd.

Official data released on Tuesday indicated that refineries processed 13.91 million bpd in August, the highest rate since March. This throughput level meant that approximately 640,000 bpd was sourced from existing inventories. Earlier draws on inventories included about 500,000 bpd in May and 940,000 bpd in June. July, however, saw a surplus of 210,000 bpd as imports marginally increased and refinery runs remained subdued.

Despite these recent draws, the builds seen in the early part of the year have not been entirely offset, with a reported surplus of 330,000 bpd for the first eight months of the year. China's onshore crude inventories were estimated at 1.23 billion barrels as of 9 September, according to data from EA Crude Oil Inventories. This data also suggested a decline of 24.05 million barrels since the end of August, implying an accelerated rate of inventory drawdown.

Geopolitical Impact and Market Outlook

The current situation reflects China's ongoing adjustments to the loss of millions of barrels of crude from the Middle East. The Strait of Hormuz, which previously handled about 20% of global crude and refined product flows, remains contested between Iran and the United States. Additionally, advances by Yemen's Houthi group reportedly threaten Saudi exports via the Bab el-Mandeb passage.

Even with varying estimates, figures suggest a loss of approximately 5 million bpd from Middle Eastern supplies. China has largely absorbed this deficit by reducing seaborne oil imports by up to 4 million bpd compared to pre-war levels. The question remains whether China will continue this strategy of maintaining low imports while sustaining refinery runs through inventory utilisation.

Exports of refined fuels are also showing signs of recovery. Data from commodity analysts Kpler indicated light and middle distillate shipments of 975,000 bpd in August, with projections suggesting this could exceed 1 million bpd in September, potentially reaching the highest level since March 2024. While high profits from fuels such as diesel and gasoline are attractive to Chinese refiners, the recent increase in crude prices may temper their inclination to significantly boost imports.