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COLUMN-Divergent China oil demand, crude imports do match up: Clyde Russell

Clyde Russell
Sunday, 10 Nov 2013 | 11:10 PM ET

(--Clyde Russell is a Reuters market analyst. The views expressed are his own.--)

LAUNCESTON, Australia, Nov 11 (Reuters) - Once again the Chinese oil import and demand figures have thrown up seemingly contradictory information, but it's more useful to focus on the overall trends rather than monthly vagaries.

Implied oil demand rose a modest 0.3 percent in October to 9.79 million barrels per day (bpd), even though crude imports dropped to 4.81 million bpd, the lowest in 13 months.

In contrast, implied demand was 9.61 million bpd in September, down 1.8 percent from the same month a year earlier and the first year-on-year decline in 17 months.

That weakness in oil demand in September, though, coincided with record crude imports of 6.25 million bpd.

These data discrepancies would most likely lead to the observation that there isn't much correlation between imports and demand. But there is if a longer timeframe is employed.

Crude imports averaged 5.6 million bpd in the first 10 months of the year, up 3.4 percent over the same period in 2012.

Implied oil demand, which is calculated by adding refinery throughput to net fuel imports, is up 3.1 percent over the first 10 months of 2013 over the same period last year.

This isn't a large gap between these growth rates, and the difference is most likely explained by changes in commercial inventories held by refiners and by the overall decrease in net imports of refined products.

The absolute level of inventories isn't disclosed, although the official Xinhua news agency does report percentage changes, and the latest figure showed that September commercial crude stocks were up 1.43 percent from August.

However, inventories of refined products fell for a third month in September, which fits in with the relatively weak refinery processing figures for that month.

Refiners processed 9.67 million bpd in October, a gain of nearly 3 percent over September.

Some of the additional crude being processed is being exported as fuels, with net product imports dropping to just 115,160 bpd in October, a decline of 62 percent from the same month a year earlier.

The October net product imports were also well below the 243,000 bpd level seen in the first nine months of year.

The overall picture that emerges this year for China's oil demand is one of modest growth, certainly below expectations.

FORECASTS UNLIKELY TO BE MET

The International Energy Agency forecast that oil product demand would total 10.14 million bpd in 2013, while top state oil company China National Petroleum Corp (CNPC) predicted in January that it would be 10.28 million bpd.

Both these forecasts now look on the optimistic side, with even a strong pickup in the last two months unlikely to be enough to raise implied oil demand to more than 10 million bpd for 2013 as a whole.

For the first 10 months of the year China's implied oil demand was around 9.75 million bpd, up 3.1 percent from the same period last year.

This is below the 4.5 percent growth rate from 2012, which was the slowest in four years.

What is becoming clearer is that China is managing to keep its economic growth close to official targets, while at the same time slowing the rate of increase in demand for oil.

This fits in with the gradual move towards a more consumer-focused economy, with growth in retail sales, at 13.3 percent year-on-year in October, outpacing the 10.3 percent for industrial output.

Retail sales have risen more than industrial output since 2010, a reversal from most of the second half of the nineties and early years of the new century.

Another trend is that China's net fuel imports are dropping, mainly as a result of increased exports, largely gasoline and diesel.

This is likely to continue for the medium term as China's refinery building programme is running well ahead of increases in domestic demand.

It also appears that the authorities are more willing to grant fuel export permits, enabling refiners to import more crude and export more products.

Net fuel imports were just under 310,000 bpd in 2012, and if current trends are maintained, this may drop to closer to 200,000 bpd this year.

(Editing by Tom Hogue)