Chinese apparent oil consumption continued to recover in October, totalling 9.75 mb/d, the third highest levels ever and a touch shy of September's record high. The strength in demand was widespread, once again, with demand for the main four products (gasoline, diesel, jet fuel and fuel oil) increasing y/y by a solid 7.9% in October, following an 11% increase in September.
Refinery runs eased from September's record high, but remained higher y/y by 7.4% at 9.426 mb/d, boosted by the start-up of two new crude refining facilities with a combined capacity of 0.24 mb/d. Government price cuts to refined products in November, however, are likely to reduce the margin boost. We expect refinery runs to pick up nonetheless due to the completion of turnaround at various refineries (of nearly 0.35 mb/d), the return of 0.38 mb/d of Sinopec's refineries that were offline for environmental reasons and the start-up of the 0.2 mb/d Maoming refinery by Sinopec. This is likely to keep crude imports elevated as well.
Anecdotal evidence, however, points to a slight demand slowdown in November, with petrol station gasoil sales weakening in the first half of the month, as temporary regulation around the 18th Party Congress and significantly colder weather in the North impacted demand from infrastructure, construction and mining projects. Moreover, anticipated cuts in retail gasoline and diesel prices (which took place on November 16) resulted in consumers deferring their purchases. Most of these factors are temporary, and consumption in petrol stations is said to be picking up already, although average November demand may be skewed lower somewhat.
Overall, the improvement in macroeconomic and oil demand conditions should persist, with our expectation that additional fiscal stimulus measures will be announced early next year thereby providing additional support.