Refiners in China increase crude oil processing and imports in the first half of 2023

Refiners in China processed and imported record volumes of crude oil in the first half of 2023 (1H23), sourcing much of the additional crude oil runs from Russia, Iran, Brazil, and the United States. These increases, sparked by China’s initiatives to ease COVID-19 mobility restrictions and reopen its economy, are a return to a more than a decade-long trend of expanding crude oil processing in China following declines in 2022.

According to its National Bureau of Statistics, refiners in China processed a record-high 14.7 million barrels per day (b/d) of crude oil in 1H23, an 8% increase from 2022’s annual average of 13.5 million b/d and a 4% increase from 2021’s record-high annual average of 14.1 million b/d (Figure 1). New refinery capacity was partly responsible for the record-high crude oil processing. Shenghong Petrochemical’s 320,000-b/d refinery in Lianyungang began operations in November 2022 and PetroChina’s 400,000-b/d Jieyang refinery began trial runs in February 2023.

To process record-high volumes of crude oil, refiners in China imported record-high volumes of crude oil in 1H23. (Figure 2). China imported an average of 11.4 million b/d in 1H23, a 12% increase from 2022’s annual average of 10.2 million b/d and a 5% increase from 2020’s previous record of 10.8 million b/d.

China releases several crude oil import quotas every year, assigning a set volume of imports to a select few, mostly state-owned, refiners. In October 2022, three months earlier than expected, China announced its first batch of crude oil import quotas for 2023, indicating that it hopes to boost crude oil imports and processing to satisfy an expected increase in domestic demand. China maintained higher import quotas in 2023 than in 2022, announcing a second batch of import quotas in January and a third batch in June. These crude oil import quotas are about 20% above those set for 2022 and have allowed record-high crude oil imports and processing so far this year (Figure 3). In addition to higher crude oil imports, refiners in China also boosted fuel oil imports, particularly from Russia. Fuel oil is often used as refinery feedstock by small, independent refiners that have not been granted crude oil import quotas and by state-owned refiners that have exhausted their quotas.

In 1H23, China increased imports from all but 3 of the 14 countries that it imported an average of at least 100,000 b/d of crude oil from in 2022, according to China Customs Data (Figure 4). Compared with 2022 averages, China increased imports from Russia by 400,000 b/d (23%); from Saudi Arabia by 130,000 b/d (7%); from Brazil by 250,000 b/d (49%); and from the United States by 200,000 b/d (124%). Customs data also indicate that imports from Malaysia increased 330,000 b/d (46%); however, the volume of imports from Malaysia exceeds Malaysian production. Industry analysts indicate that much of the oil that was shipped from Iran to China was relabeled as originating from countries such as Malaysia, the United Arab Emirates, and Oman to avoid sanctions. The increase in crude oil imports from Brazil is a return to historical averages before Russia’s full-scale invasion of Ukraine.

China increased imports the most from Russia, and in 1H23, Russia passed Saudi Arabia to become China’s largest source of crude oil imports (Figure 5). From 2019–2021, China sourced 15% of its crude oil imports from Russia. Following Russia’s full-scale invasion of Ukraine in February 2022, China began importing a higher share of its total crude oil imports from Russia, likely because of the discounts that Russia offered on its crude oil sales. China sourced 18% of its crude oil imports from Russia in 2H22 and 19% in 1H23. The 2.6 million b/d of crude oil that China imported from Russia in June is the most China has ever imported from any country.

On a percentage basis, China increased imports more from the United States than any of its other top 14 import sources. Most of this increase came from increased imports in May and June. After importing about 210,000 b/d of crude oil from the United States between January and April, China imported over 520,000 b/d in May and over 740,000 b/d in June. China likely increased imports from the United States in May and June because the price of West Texas Intermediate (WTI) crude oil—a light, sweet crude oil produced in the United States—decreased relative to medium, sour crude oils from the Middle East after OPEC+ announced extended crude oil production cuts on June 4. Vortexa tanker tracking data suggest that China primarily imports medium, sour crude oil but that it increased light, sweet crude oil imports in June and is on track to import higher amounts in August. The primary sources of those August imports of light, sweet crude oil are the United States, Angola, and Ghana. The only other period during which China imported more than 500,000 b/d of crude oil from the United States was in 2020, when China was building crude oil stocks with cheap crude oil and meeting purchase commitments under the U.S.-China trade agreement.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.