03-12-2018

As Oil Prices Plunge, China Is Grabbing Every Cargo It Can Get

As oil prices plunge, there are plenty of signs that China is buying the dip — and in potentially large volumes — if shipping and trade data are any guide.

Here’s some evidence to suggest the world’s biggest source of incremental demand growth for oil has ramped up imports — and that its buying remains undimmed.

1. Imports Data
The first, and perhaps most authoritative, piece of information comes from the country itself. Inflows last month were the highest for the time of year in customs data starting in 2004. One downside to the data is that they’re backward looking. Another is that China’s imports have tended to trend higher in recent years anyway.

2. West African Feast
So backward-looking data from the Chinese government aren’t your thing? No matter. Just look at the country’s purchases from West Africa. At 1.78 million barrels a day this month, they’re the highest since at least September 2011, and an astonishing 70 percent above November 2017. It’s important to note that the country may be replacing inflows from the U.S. against the backdrop of a trade war.

3. Cargo Counts
Okay, okay, you’re right to still be skeptical. West African flows don’t completely prove heightened buying either. After all, they’re still a relatively small part of total Chinese buying. Another good place to look is at cargo counts. Since the start of October, an average of 35 spot shipments from the Persian Gulf to Asia were arranged each week. The equivalent a year ago was 19.

4. China Bound Shipments
What! You still want more? You’re saying, quite rightly, that extra Middle East barrels could be going some place else in Asia? Here’s a rather more blunt way to look at it: How many of the world’s supertankers — that is, very large and ultra large crude carriers — are pointing to China? As of Nov. 23, there were 101 (or about 202 million barrels’ worth) signaling for ports in the Asian country. A year earlier, there were 77.

5. Knowledge in Prices
Still dubious? Noisy flows data don’t persuade you? Perhaps freight prices will help. As signs of an emerging glut and worries about demand cause crude futures to collapse, rates to haul the black stuff are moving in the opposite direction. Supertankers to deliver Middle East oil to China are earning almost $52,000 a day, close to the highest since at least February 2017, according to the Baltic Exchange. Somebody, somewhere is buying more in this price slump.


Source: Bloomberg

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