China's demand for spot crude appears to be recovering after nearly five months of slower purchases caused by a shortage of import quotas, drawdowns from high inventories and COVID-19 lockdowns that muted Chinese fuel consumption.
Softer buying since April by the world's top crude importer and a drop in China's refining output to 14-month lows in July have depressed the prices of staple crude grades from West Africa and Brazil to multi-month lows.
Traders hope Beijing will soon wrap up a probe into the resale of import quotas and tax evasion by importers that has created uncertainty in the market. A fourth batch of quotas is also expected to be issued in September or October which could revive demand from independent refiners, also known as teapots, which account for a fifth of China's imports.
"Chinese majors' crude stocks are very low, and once the government wraps up inspections and finalises punishments, teapots will once again import crude," Energy Aspects said in an Aug. 23 note.
Imports into eastern China's Shandong province, home to most independent refiners, fell below 3 million barrels in both July and August, compared with about 3.55 million barrels on average in the first half of 2021, said Emma Li of analytics firm Vortexa.
Traders in Asia and Europe told Reuters that Chinese buyers recently bought Brazilian and Angolan grades at higher premiums than in the previous month, while enquiries from independent refiners have increased.
This has helped Chinese markets perk up after having been "deadly quiet" for several months, a trader with a western supplier said.
Petrobras shipped just 45% of its oil exports to China in the second quarter, versus 87% in the same quarter of 2020, according to the producer's financial statements.