China’s crude inventory balloons as refiners cut runs; Beijing raises 2025 quota ceiling

Executive Summary

Atlantic Basin: The EIA’s weekly implied US crude production figure has risen strongly amid an uptick in crude inventories and higher throughput for the week ending 18 October. Even though the EIA saw weekly supply remain flat w/w at 13.5 Mbd, we estimate that output has been rising steadily so far this month and will average a new record high of 13.3 Mbd in October.

Europe and FSU: Libya’s production recovery, alongside robust supply from other MED producers have weighed on light sweet differentials in both the Med and NWE. However, with maintenance coming to an end in the Old Continent and differentials having fallen to attractive levels, physical demand should pick up in the days ahead.

Middle East and Asia: China's crude inventories swelled despite modest import levels, as refineries scaled back operations due to maintenance and slim profit margins. While the market doesn't anticipate any additional crude import quotas for the rest of 2024, Beijing has set a higher quota cap for 2025, reflecting the start of new refining capacity.

Atlantic Basin: Weekly implied US production figure spikes as stocks and intake rise in mid-October

US crude stocks settled at 426 Mbbls for the week ending 18 October, according to the EIA’s latest weekly data, representing an increase of around 5 Mbbls (see chart below). The rise in inventories this month remains in line with seasonality, with US crude stocks typically climbing over the autumn months due to higher seasonal refinery maintenance, which often reaches its autumn peak in October (this was the case over the last three years).  

US crude stocks, Mbbls

Source: EIA

In fact, primary distillation offline capacity is expected to average around 930 kbd this month (IIR), down some 30 kbd m/m. Notably, this remains well below the levels observed over previous years for the same period, with offline capacity coming in at 2.1 Mbd and 1.6 Mbd in October 2023 and 2022, respectively.  

Surprisingly, the increase in US crude stocks has been met by stronger crude throughput, which climbed counter seasonally for the week ending 18 October and averaged around 16 Mbd, representing an increase of around 300 kbd w/w and marking a three-week high (see chart below).  

US crude intake, Mbd

Source: EIA

The rise in crude stocks, coupled with higher crude throughput implies a rise in domestic crude supply. In fact, the EIA’s weekly implied production figure (calculated using US exports, imports, supply and stock changes) came in at 14.7 Mbd last week, up around 600 kbd w/w (see chart below).  

Weekly reported and implied production figures, Mbd

Source: EIA

It should be noted, however, that the weekly implied figure is very volatile and overestimates supply. However, it suggests that output likely has been rising. This is a view shared by us, with oil majors such as Chevron and ExxonMobil expected to ramp up production further across this Permian over Q4.  

Even though EIA weekly data suggests that crude supply has remained flat w/w at 13.5 Mbd, we estimate that output will come in 200 kbd above September levels at 13.3 Mbd in October. A large part of this upside will come from the Gulf of Mexico, which will see output average 1.7 Mbd, up 150 kbd m/m, with hurricane-related outages keeping a lid on supply the month prior.  

This is an upward trend that will continue over the remainder of the year, with shale supply expected to keep US crude production growth intact in November and December, lifting US crude and condensate supply to 13.4-14.5 Mbd by the end of the year.  

Europe and FSU: Libya’s recovery pressures MED and NWE light sweet differentials to attractive levels

Libya’s production recovery, alongside robust supply from other MED producers, has placed pressure on light sweet crude differentials in both the MED and NWE. While ongoing refinery maintenance in Europe has curbed demand, leading to an oversupply of light sweet crude cargoes throughout the November trading cycle, the approaching end of maintenance and the recent drop in differentials to more attractive levels suggest that physical demand is likely to pick up in the coming days. EU-27 oil demand is set to an average of 9.96 Mbd in November-December, a jump of 550 kbd against October levels.

Currently, light sweet crude differentials have been significantly weakened, especially in the MED. October saw a notable decline, although prices have stabilised in the past week after sharp drops earlier in the month. For example, the BTC crude differential to Dated Brent on a CIF Augusta basis plunged from an average premium of $4.10/bbl in September to $1.50/bbl, with premiums even dipping below $1.00/bbl to NSD by the end of last week.

MED light sweet oil differentials to NSD, $/bbl

Source: Argus Media

Azeri crude shipments have remained steady at around 470 kbd for the second consecutive month, though the production boost from the ACE platform has been less impactful than expected. Almost all Azeri volumes are bound for the MED, primarily Italy (350 kbd), with a smaller portion (100 kbd) heading to Trieste for delivery through the Transalpine pipeline, while several cargoes were shipped to Indian Oil’s Vadinar and Pertamina’s Cilacap refinery via the Cape of Good Hope in August and September.

Kazakhstan's CPC exports have risen by 133 kbd m/m to 1.18 Mbd in October, despite ongoing maintenance at Kashagan and Karachaganak fields. These volumes are largely directed towards the MED, although competitive pricing has attracted interest from the Americas, with two Aframax tankers en route to the Buckeye Hub in the Bahamas, likely bound for PADD 1 or PADD 3 in the US.

Libya's oil exports are expected to accelerate in the coming days, with NOC announcing on 20 October that crude and condensate output had rebounded to 1.33 Mbd, the highest level since July. Export volumes have risen to just over 1 Mbd in the past ten days, with most of the cargoes heading to Europe. However, China remains the largest single buyer, with 169 kbd of Libyan crude shipped so far this month, including four Suezmax tankers chartered by Unipec en route to the country. Future Libyan loadings are likely to stay within the West of Suez region due to the significant weakening of light sweet crude differentials in Asia.

Turkey has ramped up its purchases of Russian crude, supported by the increased availability of Urals crude as Russian refineries underwent turnarounds, reducing domestic crude intake by an average of 595 kbd in September and October. As a result, Russia’s seaborne oil exports have rebounded by 265 kbd compared to July and August, with shipments to Turkey rising by 107 kbd m/m to 238 kbd. Additionally, a CPC cargo from Lukoil is headed to Aliaga. Meanwhile, SOCAR’s STAR refinery is concluding its maintenance, with operations expected to resume shortly.

Russian crude exports to Turkey by grades, kbd

Source: Kpler

Finally, Libya’s returning production has also impacted NWE markets. The NSD three-month curve has oscillated between backwardation and contango over the past week, after being in firm backwardation at an average of $1.40/bbl earlier in the month. The influx of Libyan crude into NWE, with shipments increasing from just 40 kbd last month to almost 200 kbd so far in October, has pressured demand for North Sea crude and weighed on differentials. This comes at a time when BFOET supply has been abundant, with output up by 50 kbd m/m.

BFOET differentials to NSD, $/bbl

Source: Argus Media

Middle East and Asia: China’s crude inventory balloons as refiners cut runs; Beijing raises 2025 quota ceiling

Oil prices moved within a narrow range-bound pattern this week, following a wild roller-coaster ride earlier in October. While geopolitical tensions remain keeping the market on tenterhooks, investors’ attention has switched back to fundamentals, with China once again taking centre stage. Beijing has rolled out a flurry of stimulus measures in recent weeks, aiming to jumpstart its economy and restore investor confidence. However, these efforts seem to have made little headway in boosting fuel demand so far.

China’s onshore crude inventory ballooned to a three-month high of 954 Mbbls last week, as refinery and commercial tanks swelled by 12 Mbbls over the past three weeks. This stockpiling follows a moderate uptick in crude arrivals in October, alongside reduced refinery operations due to scheduled maintenance and economic run cuts. State-owned refiners PetroChina and Sinopec have reportedly reduced crude oil throughput by roughly 2.5% m/m in October. At the same time, the 800 Kbd private refiner Rongsheng also plans to cut its processing rates this month.

China’s onshore crude oil inventory, Mbbls

Source: Kpler

Market chatter suggests that China’s state refiners lobbied the NDRC during a meeting last week to issue additional refined product export quotas for the remaining months of 2024. While we have argued that the likelihood of extra quotas is slim, Beijing’s urgency to boost economic performance and generate tax revenue leaves the door open. However, if no additional quotas are granted, we could see steeper production cuts from Chinese refiners in November and December to manage rising fuel inventories.

As the market starts trading January-arrival arbitrage cargoes in Asia, China's commerce ministry this week set the non-state crude import quota limit for 2025 at 257 Mt (5.14 Mbd). This marks an increase from 243 Mt (4.86 Mbd) in 2024, as the 400 Kbd Yulong refinery plans to operate both of its CDUs next year, while the Liaoning-based 130 Kbd Huajin and 120 Kbd Bora refineries are also expected to apply for crude import quotas. China has issued a total of 191.99 Mt of crude import quotas across three allotments this year (including 8.3 Mt for Yulong), indicating there’s still potential for a fourth round. However, market participants widely expect that no further volumes will be allocated under the 2024 quota. Instead, the government is likely to release the first batch of 2025 quotas in December. As of the first nine months, China’s independent refineries are estimated to have used up 75% of their 2024 issuances.

In the spot market, medium sour market in Asia has been relatively lacklustre in October, with Dubai cash-to-futures spread averaging $1.44/bbl, down from $1.91/bbl last month. The flatter Dubai structure, coupled with a lower Al Shaheen crude term price ($1.93/bbl in October vs $2.09/bbl in September), points to a potential reduction in OSPs by Middle Eastern producers next month. The front-month DME Oman contract dipped by $0.36/bbl m/m to an average of $1.65/bbl over Dubai swaps and is likely to trend lower, as unspecified issues at the 198 kbd Sohar refinery has led Oman’s energy ministry to sell a November-loading Oman crude cargo. Back in August, the ministry resold 1Mbbls of prompt Oman cargo due to a partial shutdown at the Sohar refinery.

Dubai M1-M3 vs Brent M1-M3, $/bbl

Source: Argus

While tepid Chinese demand continues to cap crude premiums in Asia, growing competition from arbitrage cargoes is putting additional pressure on the Dubai market. Last week, Equinor sold 2 Mbbls November-loading Johan Sverdrup crude to a Chinese buyer, marking the first shipment of this grade to Asia since April. At the time of writing, 19 cargoes have converged through the Platts market-on-close platform this month, consisting of 16 Upper Zakum and three Al Shaheen.

On light sour crude side, IFAD Murban traded at an average of $1.75/bbl over Dubai swaps, down from $1.93/bbl last month, despite expectations of a tighter supply due to oilfield maintenance. In its September crude export availability report, ADNOC projected that Murban outflows would drop by 81 kbd m/m in December, bringing total exports down to 1.56 Mbd.

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