China's apparent oil demand surged more than 4% year on year in November, the fastest pace of growth in 15 months, buoyed by a sharp expansion in manufacturing activity, which helped to drive the country's appetite for gasoil to a year's high and LPG consumption to record levels.
The surprise acceleration in manufacturing to hit the highest level in a year lifted demand for goods transport, pushing up gasoil consumption. LPG demand was driven by consumption by propane dehydrogenation plants. Together, it more than offset a 5% year-on-year drop in apparent demand for gasoline.
"The positive growth momentum should continue on the back of fiscal support. With the economy having just emerged out of deflation, and with the recovery still looking quite uneven, policy support should remain in place until the recovery becomes more broad-based," HSBC said in a research note.
The 4.1% year-on-year growth in total apparent oil demand to 11.44 million b/d in November was the second consecutive monthly increase since October when demand rose 1.1%, data compiled by S&P Global Platts using official numbers showed.
November demand was also up 2.8% from October, and higher than the average of 11.07 million b/d over the first 11 months.
Manufacturing investment grew at the fastest pace in a year at 8.4% in November, with broad-based recovery becoming increasingly visible in heavy industries, machinery and auto, data from the National Bureau of Statistics showed.
Industrial production grew 6.2% year on year in November, compared with 6.1% in October. PMI also climbed to 51.7 in November from 51.2 in October. All this improved the outlook for oil demand.
A slight decline in oil product stocks also supported actual demand. Total oil product stocks -- gasoline, gasoil and jet fuel/kerosene -- edged down 0.07% month on month at the end of November, data from state-owned news agency Xinhua showed.
Beijing does not release official data on oil demand and stocks. Platts calculates apparent or implied oil demand by taking into account official data on monthly throughput at Chinese refineries and net product imports. But the official data fails to reflect some of the crude throughput increases from the new crude oil consumers, the independent refineries. GALLOPING GASOIL DEMAND
November apparent demand for gasoil rose to a 12-month high to 3.43 million b/d, up 0.9% from October, although it fell 2% year on year. Gasoil accounts for around 30% of the country's overall oil products demand.
Transportation accounts for nearly 70% of gasoil demand, while agriculture and construction sectors account for the rest.
Gasoil demand recovery was also supported by a draw in stocks for the fourth consecutive month. Gasoil stocks at the end of November were 3.9% lower month on month, following decreases of 2.88%, 12.81% and 16.81% in the previous three months, respectively, data from Xinhua showed.
The high apparent demand was also a result of lower supply from the blending pool, which pushed up production at refineries to make up for the loss.
Blended barrels, with imported light cycle oil and domestic kerosene as the main components, are not included in gasoil apparent demand calculations because of the absence of official data.
China's imports of light cycle oil remained relatively low at 384,549 mt in November, compared with an average of 445,906 mt over July-September. Blending with 1 mt of LCO could get 2-2.5 mt of off-spec gasoil, which is mainly used in the construction and fishing sectors. GASOLINE CONSUMPTION FALLS
Apparent demand for gasoline fell 4.7% year on year in November after a 5.2% increase in October. It was 3.3% lower from the previous month. Gasoline stocks at the end of November edged up for the second consecutive month by 0.87% from October.
However, market sources said the actual fall in demand would probably not be that sharp if blended barrels were taken into consideration.
No official data reflects the blended gasoline barrels. But sales of imported mixed aromatics, which are used mainly as a blending material for gasoline, provide an indication of demand.
Data from the General Administration of Customs showed that China's imports of mixed aromatics jumped 23.7% month on month to 868,190 million mt, suggesting a rise in blending activity.
The fall in gasoline demand was also capped by a 17% year-on-year rise in gasoline-fueled vehicle sales in November, data from the China Association of Automobile Manufacturers showed. Sales of gasoline-guzzling sport utility vehicles surged 42% year on year. LPG, NAPHTHA DEMAND
LPG demand surged to a historical high of 1.8 million b/d in November, up 38.5% year on year and 12.3% month on month. The previous high of 1.66 million b/d recorded in March last year. Over the first 11 months of 2016, demand for LPG averaged 1.55 million b/d.
Market sources attributed the growth to plentiful volumes imported to feed the country's propane dehydrogenation plants, which increased their run rate significantly to meet incremental industrial demand.
Seven major PDH plants in China were estimated to have run at an average of 77% of their capacity in November, up from around 67% in October, a Platts survey showed earlier. In addition, two new PDH plants -- the Hebei Haiwei and Oriental Energy's Ningbo Fuji Petrochemical -- started operations, respectively, in October and November.
As a result, propane imports in November jumped 95% year on year and 30% from October.
Apparent demand for naphtha in November fell 4.9% year on year but it was up 7.6% from October at 980,000 b/d in November. It was higher than the average of 964,000 b/d over the first 11 months.
China's ethylene production from naphtha-fed crackers edged down 1.4% from October and 0.5% year on year to 1.45 million mt in November. JET FUEL, FUEL OIL DEMAND
Apparent demand for jet fuel in November rose 29% year on year to 800,000 b/d, the highest in 21 months. Month on month, it rose 8.2%.
Actual consumption in November should be lower because of a month-on-month rise in stocks of 9.89%, data from Xinhua showed.
Latest data from the Civil Aviation Administration of China showed that aviation traffic rose 12.7% year on year in October, although it slowed from the 14% growth in September. In the first 10 months, turnover increased 12.6% year on year.
Apparent demand for fuel oil recovered to a five-month high of 687,000 b/d in November, rising 7.3% from October despite falling 1.2% year on year.
Customs data showed that imports of bitumen blend -- which refers to heavy residual blends such as 380 CST fuel oil, bitumen or heavy gasoil -- surged 286% from October. The grade is used as feedstock by independent refineries.
Consumption of bitumen blend at Shandong, home of most of the independent refineries, rose 55% month on month in November.
Imports of fuel oil in November rose 6.1% month on month because of high demand from the bunkering sector.
