LAUNCESTON, Australia (Reuters) - Asia imported a record amount of crude oil in April as refiners took advantage of low prices amid a price war between top exporters Saudi Arabia and Russia.
But that’s likely as good as it gets for a while as the economic slowdown caused by the new coronavirus and rapidly filling regional storages crimp demand in May, and likely for the next few months after that.
Asia, the world’s top crude-consuming region, imported 26.9 million barrels per day (bpd) in April, according to vessel-tracking and port data compiled by Refinitiv Oil Research.
This was up from an average of 26 million bpd in the first quarter of the this year, Refinitiv said in a report.
The increase appears mainly to have been driven by stockpiling on the back of the price war that broke out at the start of March when the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, couldn’t agree to increase or extend output cuts that had been in place since the start of 2017.
The failure of the group, known as OPEC+, to agree on new output cuts led to Saudi Arabia and Russia both moving to flood the market with oil, which in turn drove a collapse in prices. Benchmark Brent crude futures slumped 24.1% on March 9, the biggest one-day decline since the first Gulf War in January 1991.
The Saudi move to flood the crude market may have been a workable tactic in normal times, but it coincided with much of the world economy going into some form of lockdown as countries grappled with the spreading coronavirus pandemic.
A new deal to restrict output by 9.7 million bpd was agreed by OPEC+ on April 12, and while this arrested the slide in oil prices, the relief has so far proved temporary, with Brent dropping to $15.98 a barrel on April 22, the lowest in 21 years.
While prices have staged a rally since then, April was always going to be an unusual month for crude in Asia, as it was the time when all the crude from the price war arrived, and before the impact of the new deal to cut production could be felt.
China was once again the leading light for crude imports in Asia, with Refinitiv assessing April arrivals at 10.04 million bpd, up from March’s customs number of 9.72 million bpd, but not as high as February’s 10.85 million bpd.
It’s worth noting that February and March were the peak of the lockdowns in China to contain the coronavirus, which originated in December in the city of Wuhan.
While the lockdowns certainly hit China’s consumption of oil products, the drop in total demand was far more muted as excess crude flowed into strategic and commercial stockpiles.
China doesn’t release data on crude inventory builds, but subtracting refinery throughput from crude available from imports and domestic output showed that about 2 million bpd went into storage in the first quarter, a doubling of the rate from the same period in 2019.
It appears that much of April’s imports in Asia also went into storage tanks, with Refinitiv estimating that crude stocks have ballooned by 128 million barrels since the end of January, based on 6,915 floating roof storage tanks in China, India, Japan, South Korea and Singapore.
While there is some storage still available, it’s likely that refiners will now be cautious about buying extra crude, given the weakness in demand as the coronavirus cripples aviation, tourism and significant personal vehicle travel in the region.
Refineries are also bringing forward maintenance plans, especially outside of China, with Refinitiv estimating that 5-7 million bpd will be offline in May across Asia.
India is likely to emerge as a significant drag on Asia’s crude imports as the region’s second-biggest importer remains in lockdown while it battles to contain the spread of the coronavirus.
India’s imports for April were assessed by Refinitiv at 4.76 million bpd, down from a record 4.8 million bpd in March and 4.78 million bpd in February.
But the curtailing of refinery runs means India is likely to report a decline in May’s imports, with as much as a third of capacity offline.
With the likely tailing off of buying crude for storage, outside of China, and still weak demand, it’s possible that Asian demand in coming months may be lower than the reduced amount of crude available from the production cuts by OPEC+, and involuntary shut-ins elsewhere by loss-making producers.
Editing by Richard Pullin