Asia’s imports of crude oil reached a record high in January, but the strength wasn’t driven by China, with the world’s biggest buyer actually recording a decline.

Asia’s total imports were 29.13 million barrels per day (bpd), up 11.1% from December’s 26.22 million bpd and eclipsing the previous all-time high of 29.10 million bpd from November, according to data compiled by Refinitiv Oil Research.

Much of the recent market narrative has been how China’s re-opening from COVID-19 lockdowns will drive up crude oil demand, but the data shows this story has yet to play out in reality.

China’s imports were assessed at 10.98 million bpd in January, down from December’s 11.37 million bpd and November’s 11.42 million bpd.

The relatively small decline may be related to the early Lunar New Year holidays, which fell entirely in January this year.

This may have led to some pulling forward of cargoes into December and some pushing back into February.

However, the overall message from China’s crude oil imports is that while they are solid, they have yet to accelerate as expected by the bullish China economic narrative.

This isn’t too surprising as physical demand tends to lag market sentiment, given that cargoes are arranged several months in advance.

This means that any acceleration in China’s crude imports is likely only from March onwards, and even then there are several other factors to consider.

The first is whether the boost to travel, and thus fuel demand, seen over the Lunar New Year is maintained, or whether large parts of China’s population continue to hunker down at home now that the holidays have passed.

It’s likely that COVID-19 will largely fade as a factor in China, just as it has in other countries that have fully re-opened, but how quickly fuel demand recovers and exceeds pre-pandemic levels is still uncertain.

FUEL EXPORTS

Another factor is the price of crude oil and the interplay between China’s inventories and its exports of refined products.

China has ramped up exports of fuels such as diesel and gasoline as Beijing granted export quotas to refiners, a move that boosts economic activity and the refiners’ profitability as they can grab a share of the strong margins for fuel currently available in Asia.

As long as China can secure crude at a price low enough to make fuel exports compelling, it’s likely that refiners will continue to seek to maximise shipments of products.

China has increasingly turned to Russian crude, which is being sold at steep discounts as Moscow seeks to find new markets for its oil after Western countries stopped buying as a result of sanctions and other measures imposed after Russia’s invasion of Ukraine on Feb. 24 last year.

China imported 2.03 million bpd from Russia in January, according to Refinitiv data, up from 1.52 million bpd in December.

This made Russia the top supplier to China, overtaking Saudi Arabia, with imports of 1.77 million bpd from the kingdom.

The two heavyweights of the OPEC+ group have played tag team with each other for the position of top supplier to China since the war started in Ukraine.

A question for the crude market is whether China’s increasing imports from Russia has a price implication for global benchmarks such as Brent crude, given that Russian oil is now largely disconnected from the world system.

While the market waits to see whether China’s economic re-opening and Beijing’s stimulus measures do translate into higher imports, it’s worth looking at where there was strength in Asia.

INDIA RECORD

India, the region’s second-biggest importer, saw January arrivals hit a record high of 5.29 million bpd, up from December’s 4.78 million bpd.

The data shows that Russia maintained its position as top supplier, with January imports of 1.33 million bpd, up from 1.19 million bpd in December.

Prior to the war in Ukraine, Russia was a minor supplier to India, but the availability of cheap oil from Russia’s western ports, which used to go mainly to European refiners, has seen India ramp up imports.

Other major Asian oil buyers also saw gains in January, with South Korea importing 3.11 million bpd, up from 2.85 million bpd in December, while Singapore imported 1.65 million bpd, up from 910,000 bpd.

Japan was the exception, with January imports dropping to 2.83 million bpd from December’s 2.96 million bpd.

The question is whether Asia’s crude imports will be maintained at high levels amid signs that higher interest rates are starting to have some bite on consumer spending and on export-dependent economies such as Japan and South Korea.