Chinese apparent consumption totalled 9.43 mb/d in May, falling m/m by slightly more than seasonal norms on lower diesel demand. Adjusted for some destocking, we expect Chinese demand in May to have been flat y/y. With stimulus measures starting to bear fruit (Chinese June PMI climbed above 50 for the first time in six months), we expect Chinese oil demand growth to pick up to 2% y/y in H2 14 relative to less than 1% in H1 14.
While diesel demand was weaker than expected as rainfall weighed on construction and agricultural activity, gasoline demand was stronger than expected yet again, on rising car sales. Naphtha demand eased and with 1.6 Mtpy of new coal-to-petrochemicals plants due to start up this year, naphtha demand is likely to fall further.
Fuel oil demand plummeted to the low point for the year on teapot refineries switching away to crude. This meant China was a small net exporter of fuel oil once again in May, and the country is likely to become a sustained net exporter of fuel oil by August this year. Indeed, the sharp fall in fuel oil imports turned China into an overall small net products exporter in May.
Chinese crude inventories increased by 0.83 mb/d, in line with our estimates, as crude oil imports stayed above 6 mb/d while refinery runs eased. We suspect a large tranche of the crude headed to the SPR, especially with imports of discounted Iranian crude staying extremely high at their second highest levels ever of 0.76 mb/d.
Chinese refinery runs fell to 9.52 mb/d in May as refinery maintenance peaked at 0.7 mb/d. In June, offline capacity fell to 0.46 mb/d, and despite an explosion at Sinopec's Yangzi refinery, runs are set to rise by 6% m/m, led by PetroChina and Sinopec raising runs by 5% m/m.