After a long period of dwindling demand, China's oil consumption showed first signs of stabilizing in June as a rebound in industrial activity helped the country's appetite for fuels such as gasoil recover from previous month's multi-year lows.
Total apparent oil demand in the world's second-largest oil consumer averaged 11.32 million b/d in June, up 4% from May and more or less flat with June 2015 levels, down just 0.1%.
China's apparent oil demand has been going downhill since December, with the year-on-year fall widening to 2.7% in May, according to Platts calculations based on official data.
Over the first six months of the year, cumulative apparent oil demand edged down 0.6% to 11.15 million b/d, but was higher than the average of 11.10 million b/d for the first five months.
Platts China Oil Analytics expects the country's oil demand to grow under 1% year on year in 2016.
China's GDP in January-June grew 6.7%, which was higher than the expected growth of 6.6%.
"The country's economy stabilized in Q2, which was evident when GDP beat market's expectations, and almost all other data points were ahead of estimates as well," a report from Jefferies Equities dated July 17 said.
In June, China's real economic activity growth recovered from May, with value-added industrial production growing at 6.2% year on year, which was higher than the growth rates of around 6% in May and in April.
Fixed asset investment growth picked up to 9.8% in the year to date, from 9.6% a month earlier. Growth in fixed asset investment and industrial output is related to energy consumption.
Analysts are hoping that economic growth may find support from government policies, preventing any major slide in demand for oil, a factor that might bring some cheer to international markets which saw world crude prices hovering around three-month lows this week.
"We expect the expansionary fiscal and monetary policies implemented in Q1 to gradually filter through the economy in H2, lifting H2 growth to 6.9% year on year," Standard Chartered Bank said in a research note, commenting on the outlook for China's GDP growth.
GASOIL, FUEL OIL
Beijing does not release official data on oil demand and stocks. Platts calculates apparent demand for individual oil products by adding refining output, as reported by the National Bureau of Statistics, and net imports, as reported by the customs department. By product, apparent demand for gasoil of 3.39 million b/d in June was down 6.4% year-on-year but up from the 70-month low of 3.14 million b/d in May.
The decline was narrower than the average year-on-year decline of 8.2% in the first half of 2016.
Gasoil stocks at the end of June were down 6.4% month on month after a 5.4% decrease in May, according to data published by state-owned news agency Xinhua.
This implies that gasoil sales in June were better than the previous month.
Fuel oil demand in June dropped 31.6% year on year to 765,000 b/d, and was 10.9% lower from May levels.
The year-on-year drop occurred as China's independent teapot refineries increasingly switched to imported crudes as feedstock, from fuel oil or bitumen blend.
Over the first half of 2016, apparent demand for the fuel dropped 20.2% to 750,000 b/d.
GASOLINE, JET FUEL
Apparent demand for gasoline in June recovered from May, with a 4.6% month-on-month rise to 2.81 million b/d, which was also 2.6% higher than the same month last year.
In May, apparent demand for gasoline had fallen 1.3% year on year to 2.68 million b/d, which was the first year-on-year decrease since February 2014.
Demand was likely supported by a 16.8% year-on-year increase in China's gasoline-fueled vehicle sales in June, in contrast to a 4.1% decrease in the same month of last year, data from the China Association of Automobile Manufacturers showed.
Sales of gasoline-guzzling sport utility vehicles jumped 35.2% year on year, compared with a 0.6% decline last June.
Moreover, gasoline stocks at the end of June retreated by 0.6% from the end of May, after three consecutive month-on-month builds in stocks over the March-May period, according to Xinhua.
Actual consumption also included blended gasoline, in addition to the barrels produced from the refining sector. Blended gasoline is not included in apparent demand calculations because of a lack of official data.
It is hard to tell how many barrels of blended gasoline flowed in to the domestic market in June, but heavy imports of mixed aromatics, a blending material for gasoline, indicated the volumes were quite high.
Imports of mixed aromatics remained unusually high at 1.17 million mt in June, up more than 100% year on year, customs data showed.
Once blended into the gasoline pool these aromatics would add around 1.11 million b/d of blended gasoline to the production flow from refineries.
Apparent demand for jet fuel rose 18.1% year on year to 782,000 b/d in June, higher than the H1 average of 751,000 b/d.
The latest data from the Civil Aviation Administration of China showed overall aviation traffic turnover continued to register growth, rising 11.4% year on year in May and 12.2% in the first five months.
NAPHTHA, LPG
Apparent demand for naphtha in June posted a growth of 12.4% year on year, rising to 999,000 b/d, which was 4.9% higher from May levels.
The growth was attributed to increasing production from independent refineries, which are using more light feedstock to generate more light-end products than before.
Production of naphtha rose 15.5% from June 2015 to 800,000 b/d.
Over the first half of the year, apparent demand for naphtha jumped 18.3% year on year to 981,000 b/d, on the back of a 53.4% increase in net imports. Inflows were mainly used as feedstock to produce ethylene, output of which grew 8.8% in the first six months to 9.2 million mt.
Apparent demand for LPG rose 37.9% year on year to 1.62 million b/d in June, which was up 4.1% from May.
It was higher than the 1.52 million b/d averaged in the first half of 2016.
Market sources said June demand was supported by propane dehydrogenation plants, while sales to the residential sector remained stable.
A source told Platts that PDH plants lifted their runs to round 80% of their capacity in response to thick margins of about Yuan 150/mt ($22.54/mt).
