Tanker Owners Benefit from China’s Oil Imports

Image Source: Frontline Ltd., via Bloomberg News

China has overtaken America as the world leader in crude oil imports. In the first half of 2017, it averaged 8.55 million b/d of crude oil as compared to 8.12 b/d of the United States. Previously, it was only the dry bulk trade that benefitted from China being a major player in global trade, however, in recent times, tanker owners have also entered the playing field.

Domestic oil production is the major difference between the United States and China. While China’s crude production is gradually decreasing, the production in the United States is on the increase. According to Reuters, domestic production fell by 5.1% in the first 6 months of 2017, averaging 3.89 million b/d. Thus, crude imports have been on the rise to compensate for decrease in production in the country.

Shipbroker Gibson states, “perhaps more significantly, another factor driving imports has been the continuing effort to build strategic petroleum reserves (SPR). Finding accurate data on the levels of SPR build can be difficult. However, by adding crude imports to domestic production, minus refinery throughput an idea of surplus oil used to build SPR can be identified. According to data from Reuters, when comparing the first half of 2016 to 2017 the increase between available crude and refinery throughput was 510,000 b/d. Not all of this would necessarily go into filling the SPR, however, it is interesting to note that a large percentage of overall crude import growth can potentially be attributed to the SPR build. Data released for July, shows refinery throughput was the lowest it has been since September 2016. This slowdown in refinery throughput coupled with rising oil demand further highlights the role of SPR builds in crude demand and invariably raises the question of how long can this continue? It is assumed that China will continue to build their SPR for years to come with the IEA highlighting 2020 as a tentative completion date, with 182 million barrels of storage space yet to be commissioned (according to latest reports). However, unless further investment is made into building new storage facilities it is possible to assume that this artificial source of import demand will gradually decline.”

However, “according to a recent presentation from Sinopec, China plans to add 2.5 million b/d of refining capacity by 2020, supporting growth in Chinese oil imports into the future. In recent years the expansion of China’s refining capacity has pressured regional refining margins, as China’s refined product exports rise. Politics may impact this in the future, but expanding capacity does look set to place China in a more dominant position within the refined products market. Evidently, China will continue to have an ever greater role in the global oil market and continue to cement its position as the world’s largest crude importer. Due to declining domestic production and refinery expansions this should prove positive to tanker demand in years to come” Gibson concluded.