China's Oil Market Remained Significantly Oversupplied in September - Commerzbank

Continued Increase in Crude Oil Imports

China's crude oil imports rose by 4% year-on-year in September, reaching 10.92 million barrels per day (bpd). The increase was largely driven by higher imports from Russia and the Middle East.

Rising Domestic Production

Despite increased imports, China's domestic crude oil production also increased in September, rising by 3.4% year-on-year to 4.24 million bpd. The growth was primarily attributed to increased production from mature fields.

Slowdown in Refining Activity

The combined impact of rising crude oil imports and domestic production led to a surplus in the domestic oil market. This resulted in a slowdown in refining activity, with refinery throughput decreasing by 5.2% year-on-year in September.

Implications for the Market

The persistent oversupply in China's oil market has contributed to downward pressure on domestic crude oil prices. This, in turn, has reduced the profitability of domestic oil producers and refineries.

The oversupply is also expected to weigh on the Chinese economy, as it may lead to lower tax revenues from the oil and gas sector. Additionally, it could potentially lead to increased dependence on oil imports, which may increase the country's vulnerability to external shocks.

Outlook

The outlook for China's oil market remains uncertain. While the oversupply situation is expected to persist in the short term, there are positive signs of growth in domestic demand, particularly in the transportation sector.

However, the global economic outlook remains challenging, and the ongoing COVID-19 pandemic continues to pose risks to the recovery of the oil market. The Commerzbank report concludes by stating that "the market will need to closely monitor developments in both the domestic and global economies to assess the implications for the future direction of the Chinese oil market."