COLUMN-China crude imports not as soft as data suggests: Clyde Russell
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, June 11 (Reuters) - The weakness in China's crude imports and apparent oil consumption is starting to look at odds with other economic indicators.
Crude imports were 5.64 million barrels per day (bpd) in May, a gain of a mere 0.4 percent from April and 6 percent below the record 6 million bpd in May last year.
In the first five months of the year, crude imports are actually down 2 percent from the same 2012 period, at 5.6 million bpd.
While it would be hard to find analysts who believe China's economy is roaring ahead, it is by no means falling apart.
Rather, the best description for economic growth in China now is that it appears to be fragile and struggling for momentum.
But even that description has to be put in context, with industrial output rising an annual 9.2 percent in May, little changed from April's 9.3 percent and meeting market expectations.
Also worth noting is that retail sales rose 12.9 percent, fixed-asset investment by 20.4 percent and vehicle sales by 15.7 percent.
All these figures suggest that crude oil imports should be higher. Even the relatively modest industrial production growth should result in higher fuel demand, while the strong vehicle sales should be boosting consumption of gasoline and diesel.
But apparent oil demand is also looking soft, edging up 1 percent in May from a year earlier to 9.48 million bpd, the lowest rate since September last year.
This figure is calculated by taking refinery throughput and adding in net fuel imports, but importantly it excludes changes in both strategic and commercial inventories.
It is here that Chinese oil data often masks what is happening.
For instance, apparent oil demand reached a record 10.9 million bpd in December, but by May it was down by 1.42 million bpd, a huge drop that is entirely without credibility.
Either the December figure was inflated, or the May figure is way under, but either way the difference is likely to be in inventories.
China doesn't divulge inventory volumes, but an official newsletter does give monthly percentage changes for commercial fuel stocks, which is useful for working out the trend.
Refined fuel inventories were 3.32 percent lower at the end of April from a month earlier, the Xinhua News Agency said on May 22, while crude stockpiles were up 0.14 percent.
This continued a recent trend of lower fuel stocks, and helps explain some of the weakness in crude imports and refinery runs, namely that inventories are being reduced.
Refinery maintenance also explains some of the weakness in crude throughput, as does a later start to the planting season, which would have trimmed diesel demand in the farm sector.
But by far the biggest reason the crude import numbers look soft so far in 2013 is that they are being compared to a period in 2012 when China was reportedly filling strategic stockpiles.
It has never been officially revealed how much oil flowed into storage tanks in the first six months of last year, but it is believed to be in the region of 400,000 bpd.
For the first five months of the year, crude imports have averaged 5.6 million barrels, down from 5.72 million bpd for the first five months of 2012.
But if you subtract 400,000 bpd from the last year figure, that leaves imports for actual consumption at 5.32 million bpd. In turn, using this figure shows imports are actually about 280,000 bpd higher so far this year.
This fits in much better with the current economic picture from China, i.e., one of modest economic growth.
But it must also be realised that the 400,000 bpd that went into storage last year were real, even if they weren't consumed.
The fact that they are no longer being imported does make the crude numbers look soft and goes a little way to explain why crude oil prices have struggled to gain in 2013, with Brent down 6.5 percent this year.
Looking ahead, crude imports should start recording fairly large gains in percentage terms from this month on, mainly because China's imports were 9.2 percent weaker in the second half of 2012 than the first.
It's also likely that apparent demand will start to rise as well, given the peak summer demand period and the end of refinery maintenance.
(Editing by Clarence Fernandez)