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China can absorb more oil imports

SINGAPORE, Aug 3 (Reuter) - China's crude oil and diesel buying spree has raised concerns among Asian oil traders that it might suffer from a glut by the fourth quarter, but Chinese sources think otherwise.

"China will continue to buy crudes and diesel in September as long as international prices remain low," a trader from state trading firm SINOCHEM in Hong Kong told Reuters, echoing the sentiment of colleagues in China.

Chinese and trade sources estimate China has imported about 500,000 tonnes of diesel per month for July and August delivery. The Chinese sources forecast diesel imports for September would exceed 500,000 tonnes.

Earlier, a Singapore-based source at SINOCHEM said China bought up to five million barrels of crude oil for July and August. Although crude imports for September are unclear, Chinese sources expect them to be high through to the fourth quarter.

Last year, China had to clamp down on gas oil imports and resold certain crudes on the spot market after overbuying. Asian traders believe China could now experience a glut of diesel as domestic refineries continue to produce amid heavy imports.

However, Chinese traders disagreed. "China's recent crude oil demand is purely dictated by price," the Hong Kong-based SINOCHEM trader said. "Its diesel imports, however, are due to good demand and anticipation of higher demand after the floods."

Over the past two months the imported price of diesel in China has dropped about 11 percent to around US$160 per tonne c&f from a high of $170.

Chinese sources said imports would continue as long as international prices were below domestic breakeven levels, now at around $170 per tonne. They added that domestic prices are forecast to increase in line with demand.

"This means present imports will be sold (domestically) at higher levels," a Beijing oil trader said.

Meanwhile, heavy rainfall has flooded most of the south and northeast regions, threatening operations at some coastal refineries. A Beijing source at SINOPEC said two refineries at the seven million tonne-a-year Fushun Petrochemical complex in the northeast of the country had been closed down.

However, the source said the shutdowns have not had a major impact at the refinery. "Operation rates at the other units at Fushun have been increased to make up the shortfall from the units affected by the floods," he said.

Officials are closely monitoring the situation at another refinery in Dalian, also in the northeast, but it is operating normally.

Chinese sources said demand for diesel in the south and east of the country has been strong as emergency power is required to substitute for damaged transmission lines and to run generators used to drain farmland.

They also attributed the buying spree to expectations that demand for diesel from fishing vessels would rise the season opens at the end of August. According to Chinese sources, fishing vessels accunt for about 40 percent of China's total diesel demand.

"Late August and September are the periods of highest demand from fishing vessels in China, which (will start to) operate again after not fishing for 40-50 days," the Beijing oil trader said. Earlier this year, Beijing imposed a 40-50 day ban on fishing in domestic waters from July to enable stocks to replenish.-Reuter