Asia has been the laggard of crude oil demand growth this year, but the world’s top-importing region looks set for a modest rebound in imports in August.
Usually when Asia’s imports strengthen it’s a China-led story, but for August the big improvers in demand are India and Japan, the region’s second- and third-biggest buyers.
India is on track to record its highest imports in five months in August, with commodity analysts Kpler estimating the South Asian nation will land about 4.33 million barrels per day (bpd), slightly more than the 4.31 million bpd forecast by Refinitiv Oil Research.
Whatever the final outcome, what is certain is that India’s oil imports have rebounded this month from a 12-month low of around 3.4 million bpd in July.
The recent weakness in India’s imports was caused by the double whammy of a renewed outbreak of the coronavirus pandemic and high crude oil prices, which caused refiners to defer purchases.
Both negative factors have eased somewhat in recent weeks, while the coronavirus is still prevalent in India, the economy is re-opening, leading to higher fuel demand.
Crude oil prices peaked so far in 2021 in early July, with benchmark Brent futures reaching a high of $77.84 a barrel on July 6, and then have trended lower to end at $71.93 on Wednesday.
Much of the crude arriving in Asia in August would have been purchased prior to, and around the peak of crude prices, with the exception of India, where refiners tend to buy spot cargoes with a much-shorter delivery window given the country’s geographic proximity to the Middle East producers.
It may be the case that Indian refiners took advantage of the dip in Brent and other crude markers, such as Oman futures around the middle of July, when Brent contracts dropped to as low as $67.44 a barrel on July 20.
The other strong performer for crude imports in August is Japan, with Kpler estimating arrivals at 3.36 million bpd and Refinitiv at 2.81 million bpd, up from estimates of 2.,56 million bpd and 1.85 million bpd in July.
Japan, like India is still battling coronavirus, but its refiners typically increase purchases from August onwards in order to ensure sufficient stockpiles of refined products such as kerosene, widely used as a heating fuel for winter.
China, the world’s biggest crude importer, is also expected to record an increase in August, with 10.03 million bpd forecast by Kpler and 10.79 million bpd estimated by Refinitiv, up from 9.64 million bpd and 9.71 million bpd respectively in July.
CHINA INVENTORIES
China’s imports had been soft in recent months as refiners chose to avoid high prices and use some of the excess crude stockpiles built up last year, when they snapped up large volumes during the price slump caused by the pandemic and a brief price war between top exporters Saudi Arabia and Russia.
That de-stocking phase may be coming to a close, and the steadying in oil prices may have tempted Chinese refiners back into the market.
South Korea, Asia’s fourth-largest importer, looks to be largely steady in August with both Kpler and Refinitiv reporting estimated arrivals at more or less the same as in July.
Overall, Asia’s top four crude buyers are set to import about 21.13 million bpd in August, up from July’s 19.64 million, according to Kpler data.
While this is higher than the previous two months, it is still the third-weakest month this year, indicating that Asia’s crude imports still have some way to go before they recover to levels seen earlier this year, or indeed prior to the coronavirus pandemic.
What appears to be happening in August is there is some recovery in crude imports after two weak months in June and July, but it would be overly optimistic to say that Asia’s top buyers are once again driving a recovery in crude demand.
Source: Reuters (Reporting by Clyde Russell; Editing by Michael Perry)