China's refiners processed 14.94 million bpd in August, up 7.6% from the same month last year to be the second-strongest month in the past 17, according to data published on Monday by the National Bureau of Statistics.

However, crude oil imports were 11.65 million bpd in August and domestic output rose 2.4% from the same month in 2024 to 4.3 million bpd.

This gave a combined total of 15.95 million bpd available to refiners, leaving a surplus of 1.01 million bpd once the actual processing rate is subtracted, or almost double the 530,000 bpd surplus in July.

China does not 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 oil processed from the total of crude available from imports and domestic output.

For the first eight months of the year, the average volume of surplus crude in China was 990,000 bpd, the bulk of this being built up from March onwards as crude imports and domestic output rose at a faster rate than refinery processing.

It is worth noting that not all of this surplus crude is likely to have been added to storage, with some being processed in plants not captured by the official data.

But even allowing for gaps in the official data, it is clear that from March onwards China has been importing crude at a far higher rate than it needs to meet its domestic fuel requirements.

Why have Chinese refiners been building up inventories, especially when the widespread market expectation is that prices are likely to trend lower as the OPEC+ group of eight exporters continue to wind back their voluntary output cuts?

Part of the answer is that the expected move to oversupply is relatively recent and China's refiners are more likely to have been buying more crude than they need because there already was a moderating price trend.

Global benchmark Brent futures trended lower from the peak so far this year of $82.63 a barrel on January 15 to a low of $58.50 on May 5.

However, since then, prices had a brief spike back above $80 a barrel during the conflict between Israel and Iran in June, before settling into a range anchored around $65.

MORE TO BE STORED?

The question for the market is whether prices at this level will be enough to continue to encourage China's refiners to keep adding to inventories.

During last week's APPEC oil and gas events in Singapore, the likely path for China's stockpiles was a keenly debated topic. The consensus view was Chinese refiners had the ability to add more crude to storage, but there was disagreement over whether this was likely.

The key for China's refiners is usually price, and the signs are that they are shifting their view to believe that prices should be more around $50 to $60 a barrel than the current $60 to $70 range.

But it's also worth noting that China is still buying significant volumes from the three exporters currently under some form of Western sanctions, namely Russia, Iran and Venezuela.

Imports from Venezuela were 561,000 bpd in August, according to data compiled by commodity analysts Kpler, which was the strongest month in records going back to 2013.

Arrivals from Venezuela are also poised to increase further in September, with Kpler tracking imports of 755,000 bpd so far.

Imports from Iran were 1.02 million bpd in August, up from 737,000 bpd in July, according to Kpler.

However, seaborne arrivals from Russia were down to 1.03 million bpd in August from 1.25 million in July, although Kpler is expecting a rebound to 1.13 million bpd in September.

China's crude stockpiling has been something of an X-factor in oil markets so far this year, and it is likely to remain so given the opaque nature of how it is conducted.

If prices do trend lower amid increasing supply, the reasonable expectation is that China will keep buying more oil than it needs.

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