London, 30 July (Argus) — Chinese oil demand hit a record in June, but economic growth is expected to slow in the second half of 2010.

Apparent demand in June — production plus net oil imports — rose by nearly 1.5mn b/d from May to 9.82mn b/d. This largely reflected an increase in net crude imports to a record 5.37mn b/d, which helped boost refinery runs by 180,000 b/d from May.

Not all of the surge in crude imports was processed. Commercial crude inventories rose by 315,000 b/d in June to reach 210mn bl. This helped reverse a 125,000 b/d drawdown that started at the end of March, when refiners turned to storage supplies amid lower imports. Just under 10mn bl of crude went into commercial storage in June, and the 38mn bl discrepancy between apparent demand and refinery runs suggests that China may be accelerating its strategic stockpiling.

Throughputs were scheduled to remain high in July, as government-guaranteed margins encourage high runs at refineries. Crude processing capacity was 9.6mn b/d in June, 1.2mn b/d higher than a year earlier. China's rapid refining capacity expansion helped boost crude imports by 1mn b/d in the first half compared with a year earlier. Angola overtook Saudi Arabia as China's largest crude supplier, shipping 870,000 b/d in January-June, an increase of 375,000 b/d on a year earlier. And Iraq and Brazil increased crude supply to China by over 110,000 b/d each in the first half. But Chinese refiners cut Iranian crude purchases by 165,000 b/d to 360,000 b/d in the first half from a year earlier.

High apparent demand growth is likely to slow but remain positive in the second half, the national energy administration says. China's economic activity expanded sharply following the introduction of a $586bn fiscal stimulus programme in November 2008. But Beijing is now trying to cool overheating sectors of the economy and is slowing fiscal spending and fixed asset investment growth. There are already signs that the rollback of the economic stimulus is starting to take effect. China's economy grew by 10.3pc in the second quarter, much slower than the 11.9pc in the first three months of this year, according to the national bureau of statistics.

Industrial production growth for June was the slowest in nine months, falling to 13.7pc from 16.5pc in May. The purchasing managers index for June was 49.6, falling below 50 for the first time since June last year. Anything below 50 indicates that manufacturing activity is likely to have shrunk.

If you would like to see more high quality analytical commentary on key oil industry developments and pricing and trading behaviour, request a free trial of Argus Global Markets.

Chinese apparent demand '000 b/d
	Jun	May	1H10	±% 1H09
Net imports	5,769	4,380	4,972	21.7
Crude	5,373	4,150	4,706	32.4
Products	397	230	266	-50
Production	4,052	3,984	3,946	6.2
Appt. demand	9821.0	8,364	8,918	14.3
Refinery runs	8567.0	8,386	8,260	18.7

Send comments to feedback@argusmedia.com
agm/jc 2.1

Copyright © 2010 Argus Media Ltd - www.ArgusMedia.com - All rights reserved.