China has been dipping into its substantial crude oil stockpiles, with August marking the third drawdown in four months, as refinery processing outpaced the combined supply from imports and domestic production. Refineries processed 13.91 million barrels per day (bpd) in August, 640,000 bpd more than available crude, leading to a significant reduction in inventories. This trend is driven by China's effort to increase fuel exports and take advantage of high profits from products like diesel and gasoline, with light and middle distillate shipments estimated to rise above 1 million bpd in September, the highest since March 2024.
The drawdowns have intensified, with onshore crude inventories falling by 24.05 million barrels since the end of August. Although overall inventory levels remained high at 1.23 billion barrels as of September 9, a potential relaxation of crude oil stockholding requirements is being considered. This move would allow refiners to reduce their mandatory reserves from 15 days to 10 days of processing capacity when international oil prices exceed $130 per barrel, further enabling the use of stockpiles to sustain refinery operations and exports.
The increased refinery runs and fuel exports are providing relief to tight global markets, particularly for gasoline, jet fuel, and diesel. However, the surge in global crude prices, exacerbated by supply disruptions from the Middle East, is making Chinese refiners reluctant to increase crude imports. While state-run refiners face stricter rules on drawing from commercial stocks, private refiners (teapots) might face challenges as traditional sources like Iran and Venezuela are under pressure due to U.S. blockades, potentially impacting crude import demand from this sector. Overall, China is balancing domestic supply needs with global market opportunities by strategically utilizing its crude reserves and adjusting export policies.
