China, the world's largest oil importer, has just increased demand for crude for the remainder of the year, supporting near-term prices despite a souring macroeconomic backdrop across the globe, elevated US dollar, and the impact of soaring interest rate rises on fuel use.
Bloomberg reported that Chinese buyers bought at least 10 million barrels last week from countries in the Middle East, West Africa, and South America. This could mean that the world's largest oil importer is back after imports slumped this summer due to waning demand amid an economic slowdown.
Cargoes are expected to arrive at tank farms between December and January.
The global oil benchmark Brent traded around the $96 handle a barrel on Friday. While that's 20% lower than the June peak of $122, tightening global supplies could soon send the crude prices above the physiological level of $100.
Xia Wenhong, an analyst with industry consultant OilChem, explained Beijing is encouraging refiners to export as much diesel and gasoline as possible after new trading quotas. This could mean refinery operating rates may rise by 4-5% in the fourth quarter.
Traders said strong seasonal demand for diesel had increased overall profit margins for processors, another reason for rising refining rates.
The buyers have been trading arms of top state-owned oil companies China National Petroleum Corp. (PetroChina), China Petroleum & Chemical Corp. (Sinopec), and China National Chemical Corp. (ChemChina), traders told Bloomberg.
Independent refiner Shenghong Group is also increasing crude purchases from Abu Dhabi as operational capacity is expanded.
"Independents will be driving the very near-term strength," said Mia Geng, an analyst at industry consultant FGE in Singapore.
Geng estimates the newly purchased crude will arrive in tank farms in 1Q23.
Crude prices aren't just gaining support from China coming back online. There has been increasing support for higher prices as the looming Russian oil ban in Europe begins in a little over a month, as well as the recent two million-barrels-per-day output cut by the Organization of the Petroleum Exporting Countries and allies, including Russia, known as OPEC+.
All of this may be valuable insight into what to expect this winter as tightening crude supplies and increasing China demand could outweigh global recession fears and boost brent prices above $100. So does Biden drain the SPR even more to tame prices?