China's Record Crude Imports Were a Refining Story. The Sanctioned Barrels Inside Them Are a Policy Story
China imported 11.3 million barrels a day of crude oil in 2023, 10 per cent more than in 2022 and a record, according to Chinese customs data cited by the US Energy Information Administration. Its refineries processed an average of 14.8 million barrels a day, also an all-time high. On the surface, those numbers describe a post-pandemic rebound. Underneath, they describe two structural changes: a refining system built for petrochemicals as much as for fuels, and a crude slate increasingly drawn from countries under Western sanctions.
The record runs came as China's economy reopened after the end of its zero-COVID measures in late 2022 and as new refining capacity came on stream. The EIA notes that Chinese companies plan further additions, including the 400,000 barrel a day Yulong refining and petrochemical complex in Shandong, originally due in 2024 and now delayed to 2025. These complexes are designed to convert a larger share of each barrel into chemical feedstocks, such as naphtha, LPG and aromatics, rather than gasoline and diesel.
The EIA points out that petrochemical margins in Asia have been low or negative since 2022, because Chinese petrochemical capacity has expanded rapidly while high inflation and slower growth damped demand. The largest increases compared with 2022 came from Russia, Iran, Brazil and the United States. From 2019 to 2021, Russia supplied about 15 per cent of China's crude imports, second only to Saudi Arabia. Chinese customs data show imports from Malaysia rising 54 per cent, or 1.1 million barrels a day, in 2023.
Discounted Russian and Iranian crude lowers feedstock costs for Chinese refiners, improving margins at a time when product markets are weak. The rise in imports from Brazil and the United States is less dramatic but still meaningful. The record of 2023 is unlikely to be repeated at the same pace. China's crude imports in 2023 tell us less about demand than about how Chinese refiners are positioned.