The addition of crude to stockpiles also undermines the market narrative that oil demand in the world's biggest crude importer is strengthening as it shows that refiners didn't process all the oil available to them.

A total of 570,000 barrels per day (bpd) were added to strategic or commercial inventories in the January-February period, according to calculations based on official data.

China doesn't disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.

The total volume of crude available in the first two months was 15.02 million bpd, consisting of imports of 10.74 million bpd and domestic production of 4.27 million bpd.

Refineries processed 14.45 million bpd in the January-February period, leaving a surplus of 570,000 bpd available for commercial or strategic storages.

China combines January and February data into one release to smooth out the impact of the Lunar New Year holidays, which can fall in either of the first two months or across both.

The prevailing market narrative is that China's crude oil imports had a strong start to 2024, with the evidence being the 5.1% increase in arrivals in the first two months compared to the same period a year earlier.

However, on a barrels per day basis, the increase was only 3.3%, given the extra day this year in February for the quadrennial leap year.

In volume terms, China imported about 340,000 bpd more in the first two months of 2024 over the same period last year.

However, if 570,000 bpd were added to storage, this undermines the view that China's fuel demand was strong.

PRICE IMPACT

It's also important to look at what was happening with crude oil prices at the time when cargoes that landed in January and February were being arranged.

Most of the cargoes that arrived in the first two months of the year would have been secured around two months prior, at a time when oil prices had been retreating.

Global benchmark Brent futures dropped to a six-month of $72.29 a barrel on Dec 13, having been trending lower since hitting the 2023 high of $97.69 on Sept. 29.

This means Chinese refiners were buying oil for January and February delivery at a time when prices had been falling, which would have encouraged them to buy more than they anticipated refining to add to their stockpiles buffer.

Since the December low, crude prices have been climbing amid geopolitical tensions in the Middle East and ongoing moves by the OPEC+ group of exporters to curb output.

Brent reached $87.70 a barrel on March 19, the highest in nearly five months and it has been above $80 since Feb. 9.

The rise in Brent prices is unlikely to show up in China's March imports, which are forecast to be a relatively strong 11.22 million bpd by LSEG Oil Research.

But the higher prices, coupled with the inventory builds of the first two months, may encourage China's refiners to trim imports from the second quarter onwards.

The recent pattern of China's crude imports and stockpiling suggest that refiners have become more price-sensitive buyers and more willing to dip into or add to inventories in an effort to smooth out the impact of any move higher in oil prices.

The irony is that both OPEC+ and the Chinese refiners would likely claim that they want to see some level of price stability and a well-supplied crude oil market.

Where they are likely to differ is what the base price level should be, with OPEC+ probably thinking a figure around $90 a barrel, while China would likely believe a price around $75 is more appropriate currently.

Until that gap narrows, it's likely that the current market dynamic of China stocking up crude when prices retreat, and then trimming imports when prices rise, will continue.

The opinions expressed here are those of the author, a columnist for Reuters.