China issued a substantial increase in its crude imports quotas for this year, the clearest sign yet that Chinese refiners are set for a material increase in output – and a surge in demand for oil – as the nation finally moves away from its ridiculous Covid Zero policy.
On Monday, China issued a second batch of 2023 crude oil import quotas, raising the total for this year by 20% compared to the same time last year, according to Reuters and Bloomberg. According to the document from the Ministry of Commerce, 44 companies, mostly independent refiners, were given 111.82 million tonnes in import quotas in this round.
On Monday, China issued a second batch of 2023 crude oil import quotas, raising the total for this year by 20% compared to the same time last year, according to Reuters and Bloomberg. According to the document from the Ministry of Commerce, 44 companies, mostly independent refiners, were given 111.82 million tonnes in import quotas in this round.
Combined with the 20 million tonnes in 2023 quotas granted to 21 refineries in October, that takes the total for this year to 131.82 million tonnes, up from the 109.03 million tonnes issued in the first batch for 2022. The second batch of quotas for 2022 was released in June last year.
- Zhejiang Petrochemical Corp, which operates China’s biggest privately-owned refinery site, was granted the largest quota of this batch at 20 million tonnes, on par with last year’s issuance, according to the documents.
- Hengli Petrochemical received a quota of 14 million tonnes and Shenghong Petrochemical’s newly started 320,000 barrels-per-day refinery received 8 million tonnes. Hengli won a quota of 4.83 million tonnes in the first batch in October.
Additionally, as Reuters notes, China, the world’s biggest oil importer, allocated some 2023 quotas earlier than usual to shore up the sluggish economy by encouraging refiners to boost operations.
“The issuance is largely in line with market anticipation, and it suggests that Beijing is trying to boost economy by allowing refineries to ratchet up operation,” a Singapore-based oil trader told Reuters.
Global oil futures benchmarks Brent and WTI both gained than $2 a barrel on early Monday trading on optimism for future fuel demand as China dropped its zero-COVID restrictions and began unfettered travel across its borders, Oilprice.com reports.
Crude Oil Breaks Above $75 Barrier
- After shedding 8% last week, crude oil prices are trading up over 1.7% by midday Monday.
- Last week’s drop in oil prices represented one of the biggest declines since 2016.
- A weaker dollar and higher expected demand from Chinese refiners are the main bullish drivers for crude today.
West Texas Intermediate (WTI) was trading up 1.84% as of 1:31 p.m. EST on Monday, breaking the $75/barrel barrier, while Brent was trading up 1.55%, pushing towards the $80 mark.
China’s reopening news was the key driver pushing against recession fears that commanded all the attention last week. Less hawkish sentiments coming from the Fed, combined with a softening dollar, also gave oil prices a push.
The U.S. Dollar Index dropped 0.82% on Monday.
Gains are not as high as one might anticipate over a China reopening, and do not appear to be driving towards a fast reversal of the 8% they shed previously, as traders remain cautious about what happens next with Chinese recovery.
COVID-19 cases are still expected to surge further, hampering demand.
China’s reopening has led to a surge in cases, and traders have trimmed optimism somewhat based on the latest Chinese manufacturing data, which showed activity dropping for a third consecutive month in December. Other indications of a tough recovery include emerging labor shortages and supply chain disruptions.
Last week’s drop in oil prices represented one of the biggest declines since 2016.
The recovery in oil prices on Monday also comes as the U.S. Department of Energy (DoE) is attempting to entice producers to sell oil at a favorable rate–ideally $70/barrel–to refill the Strategic Petroleum Reserve (SPR). On Friday, reports emerged that the DoE had rejected the first bids as unfavorable to taxpayers. If oil prices continue to climb, it will be increasingly difficult to refill the SPR, which has reached its lowest level since 1984.