COVID-19 III: China crude stocks surge amid drop in refinery runs

The coronavirus is continuing to ripple through markets, shuttering China’s industries leaving the global supply chain vulnerable to large-scale disruptions

As the spread of coronavirus slows in China, growing concern is being placed on its industries, and how global commodity flows will be impacted by the slowdown in industrial activity. On the crude oil side, China’s stocks are surging, signaling that refinery intake has slowed even further and roughly 4 MMb/d from expected baseline levels.

In China, stocks increased by nearly 3 MMb/d during the week and are back to the highest point seen since June 2019. The builds are concentrated mostly in Shandong Province, where inventories have risen to 30-month highs.

Steep builds in China are exemplary of the global market response to the COVID-19 outbreak, which triggered a historic downwards spiral in financial markets. The shutdown of commercial activity in an effort to contain the outbreak has placed tremendous downward pressure on oil demand, and with inventories piling up in China, rebalancing the market to support prices could be a challenge for OPEC when the group meets in Vienna on March 5–6 to discuss its coronavirus response strategy.

The collapse in refinery runs in response to local and export demand of oil products is now approximately 4 MMb/d from expected levels, or nearly one quarter of all of China’s refinery capacity. The drop in refinery activity since January is unprecedented in China in both magnitude and duration. As Covid-19 wreaks havoc on the international stage and health experts anticipate the spread of the virus to continue into the summer of 2020, it may take longer for demand to rebound than it did for it to fall in the last six weeks.

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