China’s refineries appear to have utilised recent low oil prices mainly to bolster inventories. In April, crude oil imports remained high, but processing was at 58 million tonnes or 14.1 million barrels per day, lower than March and 1.4% less than the previous year.

Refinery capacity utilisation dropped to its lowest since 2022 at just under 74%, as per Sublime China. Despite domestic oil production being 1.5% above last year, crude oil inventories increased by nearly 2 million barrels per day in April.

Apparent Oil Demand And Market Concerns

Adjusted for net exports of refined products, China’s apparent oil demand in April was 5.5% below the previous year. This reveals ongoing concerns in the world’s second largest oil consumption market.

What we’re seeing here is a clear strategic pivot from Chinese refineries—essentially taking advantage of dips in global prices to stockpile, rather than to push throughputs. This kind of behaviour often reflects a conservative approach, driven not by immediate consumption needs but by caution and anticipation. The numbers show that while import volumes stayed elevated, processing activity actually dragged—highlighting a decoupling between supply inflows and actual consumption within the country.

Now, with utilisation down to levels not seen since 2022, under 74%, and inventories rising by nearly 2 million barrels per day, this suggests that storage is being used more as a buffer than a bridge to higher demand. What’s more, refining output fell despite an uptick in domestic crude production of 1.5%, pointing not to issues on the supply chain but rather to muted downstream appetite.

For those of us watching demand metrics closely, April’s data on apparent oil consumption—down 5.5% year-on-year when adjusted for refined product exports—triggers further questions. This decline indicates more than just temporary softness. It gives us a directional bias to work with, especially when looking at macro or options positions over the next few weeks.

Shifts In Refinery Dynamics

Li at Sublime China has made it clear that utilisation trends are becoming structurally lower, at least for now. When we factor this in against an already tepid domestic growth outlook and uncertainties from industrial output figures, it’s reasonable to assume that operational decisions across Asia’s biggest refiner are no longer just responsive—they’re pre-emptive.

We should also consider how this would feed through into physical market dynamics. More oil sitting in storage means reduced spot buying pressure, which in turn might weigh on near-term price differentials or prompt backwardation to ease. For calendar spreads or time spreads especially, the flattening risk becomes more material.

From a positioning angle, tracking refined product margins, particularly gasoil and gasoline, becomes relevant here. The downshift in throughput could eventually constrain exports if demand stagnates even further, limiting how much product finds its way into offshore markets. That scenario could firm up margins later into the quarter—but only if domestic consumption stays suppressed and inventories stop growing.

We lean on short-to-medium term implied volatility measures here, specifically in Asian products and related ETF exposures, to assess how this inventory build may ripple out. If market participants interpret the stockpiling as a shield against global turbulence, it may dampen directional price volatility in the short term. On the flip side, if there’s renewed risk-off sentiment tied to China’s industrial or consumer sectors, positions should reflect that defensively.

Traders would do well to watch for the June and July customs and throughput figures closely. These will either confirm whether April was an outlier or set the stage for a trend reversal. Until then, it seems, storage rather than demand is setting the tone.

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