Oil Near $100: China’s Demand Story Doesn’t Add Up | Art Berman

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Art Berman (1:30)

I'm looking at what's happening inside China. What's happening with Chinese refineries? Chinese refineries are producing 3 million barrels a day less of the products that people need and buy. I'm saying I see problems with the party line answer.

So.

When I hear that story, all of my almost 50 years of experience in this business and intuition from life says, really? That doesn't sound right. That doesn't mean it isn't right. But that's my first reaction. That somehow China just found a way to stop using four million barrels of oil a day on a dime? Really? Wow. That's hard to believe. Now, for context, rewind 12, 15 years ago, the United States brought on four million barrels of oil a day from shale. That wasn't there. It was the same volume that China suddenly said no, thank you. And what happened? It cratered the oil market. Prices went from $110 to $50.

And that happened over years.

So there, put a pin in that. Now China reduced its oil imports 4 million barrels a day. When was the last time you put a barrel of oil or a gallon of oil in your car? You've never done it. Nobody uses oil except refineries. No one buys oil. So why are we focusing on oil? We should be focusing on gasoline, diesel, jet fuel, the things that people buy and use. Okay, so put a pin in that.

I listened to all the same stories you do. And my first question is, tell me what's happening with Chinese refineries.

Chinese refineries before the war ran about 15, 15 and a half million barrels a day. Best estimates today, 12 to 12 and a half million barrels a day. So Chinese refineries are producing three million barrels a day less of the products that people need and buy.

So I don't care how much China stopped importing. I'm looking at what's happening inside China. In one way or another, the Chinese people have a whole lot less gasoline, diesel, and jet fuel to use. Now, a little bit of that. They stopped exporting a certain volume of refined products, a couple hundred thousand barrels a day. Okay. Add that to the plus side. The inventory story that everyone...

Adam Taggart (5:58)

Yeah, this big SPR that they built this sort of, you know, over all these years. That's the...

Art Berman (6:05)

Of what? Of crude oil? Because if so, the only way to use it is to go through a refinery. And I just told you that the refinery runs their way down. So the other possibility is that they've also stored gasoline, diesel, and jet fuel, and they probably have.

But I'll bet it's a much smaller number than the crude oil. So we're down 3 million from refinery runs. We add a couple of hundred thousand from no longer exporting some refined products. And let's just say, I don't know if this is right, the real inventory draw that matters is maybe a half a million barrels a day of refined products.

Three plus 0.5 plus 0.3, demand is down 2 million barrels a day.

Adam Taggart (7:13)

So the Chinese miracle- Everyone else is looking at this as China being very smart and building this huge SPR that they can now strategically use. You're looking at it and saying, I'm not sure I buy that. I think demand is down, and it's either down because they're forced rationing and just reducing it for their citizens, or it's down because their economy is weak and they don't need it.