The demand for spot crude in China is recovering after five months. The reduction in the purchase was caused by a shortage of import quotas, drawdowns from high inventories, and COVID-19 lockdowns that muted Chinese fuel consumption.
Softer buying since April by the world’s top crude importer and a drop in China refining output to 14-month lows in July have depressed the prices of staple crude grades from West Africa and Brazil to multi-month lows. Traders and analysts say Chinese importers are now increasing the pace of purchases and paying higher premiums to secure supplies from November onwards as lockdown restrictions ease.
A sustained rebound in demand by China may tighten supplies and support global oil prices. Traders also added that the Oil demand in the No. 2 consumer is in the path of recovery as the Covid 19 cases in Beijing, and it is notable that it largely contained several outbreaks of the COVID-19 Delta variant since it emerged in the country in July.
Traders also hope that Beijing will soon wrap up a probe into the resale of import quotas and tax evasion by importers that have created uncertainty in the market. It is expected to be issued in September or October, which could be back in demand from independent refiners, also known as teapots, which account for a fifth of China imports. Imports into eastern China Shandong province, home to most independent refiners, fell below 3 million barrels in both July and August, compared with about 3.55 million barrels on average in the first half of 2021, said Emma Li of analytics firm Vortex.