This was largely due to unusually heavy refinery maintenance which predominantly took place at state-owned refineries, as well as a slowdown in demand from teapot refineries after their March buying binge. Around 1.4 mmb/d of refining capacity in China was shut for maintenance in April (up by 47\% m-o-m), leading to an expected fall in crude throughput and placing a dent in crude imports.

However, Chinese crude imports in April still saw y-o-y growth of 5.6\% albeit lower than Q1’s average double-digit growth rate of 16.8\%. China’s crude imports have surged this year so far on the back of rapidly declining domestic production as well as robust stockpiling demand ahead of an expected rise in crude prices later in the year. We expect the y-o-y growth in Chinese crude imports to continue to ease in Q2 as the teapot refineries use up their first batch of crude import quotas. Continued heavy refinery maintenance in May is likely to weigh on Chinese crude import growth as well. China’s total product exports touched a three-month low at 3.5 mmt, down by 22.6\% m-o-m and 4.9\% y-o-y. This marks the first y-o-y decline in Chinese product exports in more than two years, which can be attributed to a likely drop in overall crude throughput as well as lower oil product export quotas released by the government.

As part of a wider mandate to curb pollution, the Chinese government has slashed the second batch of oil product export quotas to 3.34 mmt. After including general trade quotas amounting to 1.3 mmt, the total stands at 4.63 mmt which is still 62\% lower than the first batch of quotas in 2017 and 67\% down from last year’s second batch of quotas. The drop in Chinese product exports has weighed heavily on Medium Range (MR) tanker rates as discussed in our Asia Clean Tanker Market Outlook Q2 2017. Rates for the South Korea-Singapore route basis 40 kt plunged to a multi-month low of $240,000 on 27 April, down by 40\% from the beginning of 2017. Chinese product exports are expected to continue declining over Q2 due to the lower product export quotas, rumored upcoming consumption tax on mixed aromatics and light cycle oil imports as well as heavy refining turnarounds in May.

Source: OFE Insights