China Refinery Runs Fall to Pandemic Level Lows

Crude oil, tracked through the United States Oil Fund (AMEX:USO), traded at 126.60 dollars on August 15, up 1.26% for the session and sitting comfortably within its 52 week range of 102.42 to 142.33. The move comes as fresh attention turns to china refinery runs, which have been sliding toward levels not seen since the early pandemic months.

China's refining sector has been quietly retreating for months, and the numbers back it up. Refinery throughput in the country fell 17.7% year over year to 12.47 million barrels per day in June, according to figures from the National Bureau of Statistics. That mark is the weakest since March 2020, when Covid first froze industrial activity worldwide.

At a Glance

• USO trades at 126.60 dollars, up 1.26% on the day, with an RSI of 53.91.
• Chinese refinery throughput dropped to 12.47 million bpd in June, a six year low.
• Chinese crude oil imports fell 41.3% year over year in June to 7.12 million bpd, a decade low.
• Average refinery run rates slipped below 60% in June and further to about 57.72% per Oilchem estimates.
• Analysts at GL Consulting expect throughput to keep declining this month.

Why China Refinery Runs Keep Falling

Two forces are squeezing Chinese refiners at once. First, disruptions tied to the Strait of Hormuz pushed crude prices higher earlier this year, eating into processing margins. Second, domestic fuel demand inside China has softened, leaving refiners with less incentive to run plants at full tilt. The combination has pushed many operators to schedule more maintenance rather than absorb losses on expensive feedstock.

May's run rate averaged 66.3%, with total processed volume down 9.1% year over year to 53.72 million tons. That slide accelerated into June, when volumes fell further to 51.24 million tons, equal to roughly 12.47 million bpd, with average utilization dropping below 60%. Separate data from Oilchem, a China based consultancy, pegged the June run rate closer to 57.72%, a 3.28 percentage point drop from May.

Imports Hit a Decade Low

The throughput slump traces directly back to the import side. Chinese customs figures released this week showed crude imports collapsing 41.3% year over year in June, to just 29.27 million tons, or 7.12 million bpd. That is the weakest monthly figure since October 2016. Higher prices driven by the Hormuz bottleneck made barrels less attractive to buyers already contending with soft demand at home, and refiners simply pulled back rather than pay up.

What USO's Price Action Signals

Even with China pulling barrels off the processing table, USO's 1.26% gain and RSI near 54 suggest the broader oil market is not showing signs of oversupply stress right now. The fund sits well above the midpoint of its 52 week range, reflecting how geopolitical supply risk around the Strait of Hormuz has offset some of the demand weakness coming out of China.

Will Chinese Demand Stabilize Soon

GL Consulting expects throughput to keep sliding this month as refiners extend maintenance schedules and Middle East supply stays constrained. Whether Chinese demand finds a floor will depend heavily on how quickly Hormuz related disruptions ease and whether domestic fuel consumption picks back up. Until then, the world's largest crude importer looks set to keep buying less, and processing even less than that.

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