If June and July imports are combined, it gives an average of 7.78 million bpd for the past two months.
This is 4.21 million bpd below the average of 11.99 million bpd in the three months to the end of February.
The United States and Israel attacked Iran on February 28, with the conflict escalating to the point where the Strait of Hormuz was effectively closed, cutting off a waterway through which about 20% of the world’s crude oil and refined products moved prior to the start of the war.
Two of the Middle East’s crude exporters, Saudi Arabia and the United Arab Emirates, have managed to boost shipments from ports outside the Strait of Hormuz, but flows from the region have still been knocked lower by around 5 million bpd.
The bulk of crude exports from the Middle East head to Asia, the top-importing region, which has seen crude arrivals drop substantially.
Asia’s total oil imports in July were 22.82 million bpd, according to data compiled by commodity analysts Kpler.While this was up from April’s 18.77 million bpd, which was the lowest since November 2015, July’s imports were still down about 4 million bpd from the average of 26.89 million bpd in the three months prior to the start of the Iran conflict.
What the data show is that the loss of imports by Asia is about equal to the drop in imports by China for the past two months.
PRICE MOVES
Part of China’s reduced imports will be because of price volatility, with benchmark Brent futures hitting a four-year high of $126.41 a barrel on April 30, a time when June and July cargoes would have been arranged. China has a track record of cutting back on imports when prices rise, but the scale of the drop has been unprecedented.
There is little doubt China has the ability to sustain lower imports for an extended period, given its vast crude stockpile, which is estimated by analysts to be at least 1.2 billion barrels strong and may even be substantially higher.
The question for the market is how long is China prepared to be the balancing force for crude oil in Asia?
China’s imports are likely to stage something of a mild recovery in August, as cargoes that managed to exit the Strait of Hormuz during the brief ceasefire between the United States and Iran are delivered.
China’s imports from the Middle East are estimated by Kpler at 2.71 million bpd for August, up from 2.43 million bpd in July and the 1.42 million bpd in June, which was the lowest in Kpler records going back to 2013. Total crude imports for August are estimated at 5.97 million bpd, but more cargoes are likely to be assessed as the month progresses, and it’s likely that August imports will exceed those for July.
September imports are likely to be more revealing, as flows from the Middle East become more constrained given the return to sharply lower shipments through the Strait of Hormuz after the breakdown of the ceasefire deal between U.S. President Donald Trump and Tehran. Even if the latest moves to restore vessel movements through the strait prove successful, it will take several weeks for exports to ramp up and several more for those tankers to reach Chinese ports.
This means China’s refiners can keep suppressing their appetite for imported crude and dip into inventories, or they can bid for cargoes from exporters outside the Middle East.
The views expressed here are those of the author, a columnist for Reuters.