JPMorgan analysts anticipate a significant recovery in China's crude oil imports, expected to begin in August. This rebound follows a notable decline, with imports plunging to an eight-year low during recent Middle East conflicts. According to Parsley Ong, JPMorgan's head of Asia energy & chemicals research, over half of China's recent crude demand reduction is likely to be temporary.
From February to May, China's crude imports saw an unprecedented drop of 4.8 million barrels per day (mbd), surpassing the 4 mbd decline observed during the height of the 2020 pandemic. The world's largest crude importer's reduced purchases helped to temper the global energy shock and cap the surge in oil prices since the war began.
In May, Chinese oil imports fell to 7.8 mbd, the lowest since December 2017, as Beijing utilized domestic oil inventories for the first time in over a year. Vessel-tracking data suggests June imports remained around 8 mbd, indicating a further 3 mbd inventory drawdown.
JPMorgan estimates that approximately 3 mbd of the decrease in crude demand is temporary. A gradual recovery is projected from August, driven by a rebound in the chemical sector's demand and China's efforts to replenish its strategic petroleum reserves.
However, JPMorgan has revised its outlook for China's gasoline and diesel consumption, now forecasting steeper annual declines of 6% and 4% respectively through 2030 compared to previous estimates.
Among energy producers poised to benefit from China's recovering oil demand, JPMorgan's top recommendation is the state-owned oil giant PetroChina. The bank expects PetroChina to pay a first-half dividend of 0.27 yuan ($0.04) per share, yielding an impressive annualized 6.4% for its Hong Kong-listed shares, significantly higher than the projected 4.8% yield for domestic rival Sinopec.
In the chemicals sector, Taiwan's Nan Ya Plastics remains JPMorgan's preferred name. The bank notes potential upside if the company achieves customer qualification for its advanced copper-clad laminate materials, crucial for artificial intelligence servers, later this year or in early 2027.
JPMorgan also highlighted LG Chem, South Korea's largest petrochemical company, as a 'laggard play' expected to benefit from lower oil prices and increased demand for global energy storage systems. While LG Chem shares have seen a more than 4% gain this year, they trail global chemical peers like Albemarle, which is up nearly 18%.
China's exports of refined oil products are identified as a critical swing factor for the second half of this year. Beijing imposed a ban on refined fuel exports in March to prioritize domestic supply amid an escalating conflict in the Persian Gulf, which threatened crude oil security.
“We believe China’s decision on whether to fully remove the ban on exports via general trade will largely hinge on its assessment of domestic supply availability and Hormuz flows,” Ong and her team stated in their research note.
If Beijing lifts the ban on general-trade fuel exports, shipments could surge by 88% to 160% from first-half levels, according to JPMorgan. Nevertheless, actual volumes will depend on export margins remaining positive, with independent refiners facing additional pressure if they lose access to discounted Iranian crude should U.S. sanctions ease.
