How to find real oil consumption in China?

Crude oil processing by Chinese refineries rose 10.8% on year to 39.60 million tonnes in June, while petroleum products inventories as of end-June increased 2.1% from a month ago to 29.75 million tonnes. The inventory level also rose from a year earlier for the first time since January.

Because credibility against Chinese statistics is not enough and some official data like inventory figures are not announced, it is difficult to grasp actual petroleum consumption in the country.

The following chart shows the estimated combined monthly consumption of gasoline, kerosene and diesel. The figures are calculated by production data released by the National Bureau of Statistics with customs data and estimated inventories based on Xinhua News data.

 The three products are account for about 60% of total petroleum products output in China, according to the International Energy Agency. Therefore, chart's proportion of crude oil processing and the three products outputs seem to be roughly correct.

According to the chart, consumption of combined products is in relatively steady upward tendency compared to fluctuating crude oil processing.

Especially, gasoline output shows quite stable increase in the monthly data released by statistics bureau as well. However, growth of diesel production, that is the biggest among three products, is slowing down since 2010.

 On the other hand, monthly outputs of other petroleum products that include naphtha or fuel oil etc. are almost capped at around 500,000 tonnes per day since 2010, except for surprising surge during October 2012 and February 2013. Except for gasoline, growth of industrial petroleum products demand in China seems to be slowing apparently.

Recently, Chinese government has ordered to domestic 19 industries to discard old inefficient excess production facilities by the end of September this year.

Since many of these facilities already have been idling due to the over capacity, the disposal of facilities is unlikely to reduce fuel consumption significantly. But the policy proves the sluggish growth of fuel demand over the past couple of years caused by large excess production capacity in the Chinese industrial sector.

Will US crude oil stocks continue to fall?

Crude oil stocks in the United States have decreased sharply over the past couple of weeks. The latest figure released by the U.S. Energy Information Administration was lower about 7% or 27 million barrels compared to late June level. Shrinking crude oil stocks have lifted WTI futures prices to above $100 per barrel. Will it be continuing further?

The sharp decline of crude oil inventories was caused by high rates of crude oil processing. Recent crude oil processing by U.S. refineries are more than 16 million barrels per day, close to the highest ever level. The aggressive processing is supported by steady petroleum products supply that has risen on year over the past three consecutive weeks.

Petroleum products supply in the U.S. fell from previous range of 20-22 million bpd to 18-20 million bpd after the Lehman shock. Supply sunk to 18-19 million bpd during the first half of this year. However, it has rebounded to over 20 million bpd since late June.

Rising crude oil outputs boosted by non-conventional production in the U.S. mainly caused high inventory and sluggish imports over the past several years. If petroleum demand continues to be steady, increasing domestic crude oil production could be absorbed. However, faster than expected shrink of Brent premium against WTI might be a risk factor.

Although Brent premium had approached to $30 per barrel in 2011 because of increasing crude oil stocks in the US Midwest, it has lowered to 2 cents on last Friday. WTI prices may be higher than Brent again in the near term since the US benchmark crude oil's quality is better than the European benchmark.

U.S. refineries have cut crude oil imports during the past several years, since domestic crude oil were cheaper than overseas Brent based oil prices. But they are likely to resume import overseas crude oil.

Moreover, U.S. refineries may reduce running rates, because cheaper domestic crude oil have encouraged them to export petroleum products. Thus, crude oil inventory in the U.S. seems to increase again unless domestic petroleum demand recovers the pre-Lehman shock level.

Heat wave raises Japanese power use by double digits

Although Japanese government has asked power saving, severe heat wave has boosted domestic electricity consumption sharply in this month.

Electricity supply by eastern Japan's Tokyo Electric Power Company increased 10.5% from a year ago in the first 13 days in July. Supply by western Japan's Kansai Electric Power Company also surged 9.8% on year.

Electricity supply by Japanese ten major power companies was increased in June for the first time since December 2012, by only 0.6% on year. Therefore, the sharp gains in July are quite unusual in this year.

However, because of users' power saving effort, power companies seems to have maintained relatively enough supply capacity against daily maximum electricity demand. Average capacity utilization of TEPCO was 85% during the first 13 days in July, while KEPCO's rate was 88%.

Since electricity supply capacity in Japan is planned to be the maximum between later half of July and mid-September, power companies are likely to avoid blackout barely despite the severe heat wave.

Meanwhile, heat wave is also affecting on Chinese electricity demand. Electricity supply in the Beijing region is expected to be shortage of 3 million kilowatts if users would not reduce power consumption.

Chinese electricity demand had been growing by double digits previously and nationwide power supply shortages were frequently seen during demand season in summer and winter before 2011. But the shortage have not appeared after 2012 in line with slowdown of power demand.

Power shortage might be seen again in this summer, but it is only a capacity shortage against the daily maximum demand. Growth of total electricity demand is unlikely to recover in China.

Chinese thermal power plants mainly use coal as fuel. Domestic coal prices in China were above 750 yuan per tonne in June 2012, but fell to about 630 yuan in July. Prices had moved relatively stable until June this year, then weakened again to below 600 yuan in July. Weaker fuel prices suggest sluggish demand for thermal power.

Heat wave hampers recovery of Japan's industrial energy use

Crude oil processing in Japan rose 3.6% on year to 3.16 million barrels per day in the first 29 days in June, according to the Petroleum Association of Japan. Crude oil processing in the nation was below the previous year's level during March and May period. June figures may suggest recovery of industrial energy consumption.

Electricity supply by Tokyo Electric Power Company also rose 0.7% on year in June. It was the first year-on-year increase in this year. However, high electricity demand seemed to be affected by warm temperature. Average temperatures in June in northern and eastern Japan were 0.9 degrees celcius higher than normal year, while June average in western Japan was 0.7 degrees higher than normal year, according to the Japan Meteorological Agency.

12 regions in Japan recorded the historical highest temperatures during June. The monthly highest electricity demand in the TEPCO's service area was 1.3% larger than a year ago.
Heat wave is lifting electricity demand further in July. TEPCO's power supply rose 1.6% on year in the first six days in this month.

Utilization rates of power generation facilities in western Japan's Kansai Electric Power Company reached to 96% on 13th June. The company could not supply enough electricity three times in June if it did not operate two nuclear power units.

Electricity demand has already exceeded KEPCO's supply capacity excluding nuclear units twice in July. Power demand in the KEPCO's service area exceeded non-nuclear supply capacity only once in the summer season of 2012, but the event has already counted five times in the early stage of this summer.

Power companies forecasted that they would have enough supply capacity in this summer. However, severe heat wave is likely to generate more electricity demand than expected, and industrial users might be forced to cut consumption further.
A lack of electricity supply capacity continues to hamper recovery of industrial energy demand in Japan.

OPEC crude oil demand is capped

Crude oil production by OPEC seems peaking out in June. Since global balance of petroleum supply and demand are still oversupply, OPEC member countries are hesitant to make up for supply disruption from part of members.

Crude oil production by OPEC 12 member nations fell 80,000 barrels per day on month in June to 30.38 million bpd, according to survey by Reuters. Decrease mainly came from Nigeria, Libya and Angola. US Energy Information Administration also estimated that OPEC June crude oil output fell 300,000 bpd from a month ago to 30.1 million bpd.

OPEC's crude oil production had decreased until the first quarter this year after peaked in the second quarter 2012. Outputs had rebounded during April and May, but fell again despite demand season in the northern hemisphere has not finished.

OPEC members started to hike their production in 2011 in order to make up for sudden supply disruption from Libya due to civil war. But Libyan supply had resumed in late 2011 and added supply sharply.

Oil shipments by OPEC members excluding Angola and Ecuador reported by Oil Movements show that the organization members' shipments were not so large in the Q2 2012 despite the high production rates. Volume of oil shipments in late 2012 was even higher than Q2 despite production fell by more than 1 million bpd from the peak.

The above chart also suggests that demand for OPEC oil has been capped because of increasing oil supply from non-OPEC producers.

Estimated quarterly call on OPEC crude oil calculated by supply and demand forecasts by some institutes are as follows. All the numbers for Q2 2013 were below actual estimated production. It means OPEC crude oil has been oversupplied in the past couple of months.

Regarding call on crude oil after July, forecast by International Energy Agency continues to be under the production quota of 30 million bpd. Meanwhile, forecasts by EIA and OPEC are close to current estimated production level. Since non-OPEC producers are expected to increase output steadily, call on OPEC crude oil is not seen to be higher even in Q4 in spite of winter demand season.

OPEC members are hesitant to increase oil production due to fears of weak demand. Therefore, decrease of supply by force majeure in Nigeria and so on is not supplemented by other members. OPEC crude oil output is likely to remain at slightly above the production quota of 30 million bpd in the near term.

Credibility of Chinese petroleum statistics

Chinese statistics have been suspected for long. Recently, the nation's trade statistics were reported to be significantly padded.

Regarding the petroleum statistics, National Bureau of Statistics and General Administration of Customs announce previous month's data on around 10th day of every month. Those figures also have been suspected how reflect real industrial movements since the monthly release timing is too early.

On the other hand, National Development and Reform Commission and Xinhua News are releasing other petroleum related data on after 20th every month.

The below chart compares monthly crude oil processing data released by NBS and NDRC. NBS's data always exceed NDRC's numbers, but the tendency of both figures are similar.

However, the difference between both numbers widened from about 800,000 barrels per day in early 2012 to 1.36 million bpd in December. After that, the difference has shrunk to about 600,000 bpd in May this year. NBS's data in the 4th quarter 2012 seemed to be padded.

Estimated monthly change of crude oil stocks that was calculated based on customs data and NBS's figures is not match with Xinhua News data, as well.

China's crude oil inventories were increased significantly in April and May 2013 according to data by customs and NBS, but Xinhua News data do not show such change.

Since statistics data often do not match by the difference in announcement agency in many countries, tendency is more important than each figure. However, no one can trust data that are unsure how sloppy.

Japan's electricity demand falls lower than just after quake period

Electricity supply in Japan fell 0.8% from a year ago in May to 68.5 billion kilowatt-hour, according to the Federation of Electric Power Companies. Electricity supply in the country has decreased on year in the past five consecutive months. Since power demands in spring and autumn are not affected by heat wave or chilly weather, lower electricity demand in these seasons suggests fundamental slump.

Japanese electricity demand in April and May this year were also lower than that in the same period in 2011, when severe earthquake damaged many power generation facilities and turmoil in transportation system depressed industrial activity across the country.

Petroleum consumption for thermal power generation by Japanese 10 major utility firms fell 24.9% from a year earlier in May to 347,000 barrels per day, while use of liquefied natural gas decreased 4.5% on year to 4.21 million tonnes. Petroleum consumption has decreased by more than 20% on year in the past four consecutive months.

Indicators of industrial trends such as Industrial Production Index have been recovering since late last year. However, electricity demand does not follow the movement recently. Although both industrial production and electricity demand are used for calculation of business coincident index in Japan, current electricity demand seems not to reflect the industrial trend due to extreme power saving.