China’s monthly oil processing data for January and February was released. The country’s oil demand in the mentioned period declined by 188 kb/d. The decline was mainly due to diesel demand that dropped 267 kb/d or 9%, as compared with 1% fall in 2015. This was because of weaker construction activities and lower freight volumes. Demand for diesel in the country is expected to remain weak; however, there might be stabilization for a short-term, according to Barclays.
According to March’s data, steel, real estate and mining industries recovered. More than 60% of diesel is used for transportation in China, while most of the transportation is for coal and other mined materials. Rebound in profitability in steel industries and mining and a short-term recovery in real estate will lead to higher transportation activities, which will underpin demand for diesel for a short period of time, added Barclays.
Meanwhile, demand for gasoline in the first two months of 2016 decelerated. Demand growth averaged only 5%, as compared with 10% in the same period last year. Given the strong increase in car sales in the first quarter, gasoline demand in China is likely to rise in the remainder of 2016, said Barclays.
“We maintain our forecast of 220kb/d y/y overall demand growth for full year 2016”, noted Barclays.
Rebound in activities of heavy industries is likely to underpin demand for diesel in the second quarter as compared to the initial two months of the year. LPG, naphtha, gasoline and jet fuel are expected to perform better than fuel oil and diesel, said Barclays. Meanwhile, exports of diesel and gasoline have increased, with those of diesel rising at a higher rate due to the drop in domestic demand for diesel.
“We expect China crude oil import to run close to 7.5mb/d level in 2016. In addition to the 220kb/d increase in demand, we expect China domestic supply to fall 130kb/d y/y for 2016 due to loss-making in domestic oil fields. In addition, we expect China to add 98mb of SPR capacity this year,” added Barclays.
