China’s oil imports rise for the first time since May

China’s crude oil imports ticked up in October for the first year-over-year increase since May, reaching 43.14 million tons, according to official customs data.

The amount is equal to about 10.5 million barrels daily, based on a conversion rate of 7.33 barrels to a ton.

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The October figure compared with an import rate of 9.79 million barrels daily for September or 40.24 million tons for the whole month. Over the first nine months of the year, Chinese oil imports stood at 370.4 million tons or 9.9 million barrels daily, which was 4.3 percent lower than the average for the first nine months of 2021.

The main reason for the weaker import demand appears to be Beijing’s strict zero-tolerance approach to Covid containment, which has also turned into a major headwind for oil prices.

Bearish sentiment was reinforced this week after Chinese government officials signaled that there were no plans to change its Covid approach, refuting reports from last week that a reconsideration of Beijing’s Covid policies was on the table.

Despite these headwinds, Chinese crude oil imports are likely to be robust in November and the early part of December as producers from around the world are estimated to have loaded in October the highest volumes bound for China in ten months.

The sizeable fuel export quotas the government awarded to refiners in September are one big reason for the expected future import rates. Those quotas were the largest for 2022 and can be rolled over to 2023.

China started this year by considerably reducing the allowances for fuel exports in the first export quota batch for 2022, signaling its intention to limit fuel sales abroad and curb excessive refinery output.

Yet that was before the diesel shortage began weighing on market sentiment and fueling fears of further inflation deterioration. As the shortage bit in, China stepped up its fuel quotas that would help fill some of the gap left by shut-down refineries in Europe and the U.S.