(MENAFN - Arab News) "Apparent" is the key word in assessing news that China's oil demand grew at the fastest pace in two years in November and went above 10 million barrels per day (bpd) for the first time.
This is because there is a fairly large part of the puzzle missing when assessing just how much crude the world's second-biggest user is actually consuming, namely inventories.
Apparent demand is calculated by taking the total amount of crude refined and adding in net imports of major oil products. However, this excludes inventory changes, which are rarely reported, and a small amount of direct crude burning for power generation.
In November, apparent demand rose 640,000 bpd from October to an all-time high of 10.4 million bpd, as refinery throughput also reached a record 10.13 million bpd.
The question is whether this rather dramatic increase in oil demand is a result of strong gains in actual fuel consumption, or whether much of it is being used to rebuild inventories depleted earlier in the year.
Apparent oil demand in November rose 9 percent from a year earlier, indicating a rapid turnaround from April, when it contracted 0.6 percent in year-on-year terms.
Looking at actual numbers, apparent demand was 9.3 million bpd in April, and actually fell further toward the middle of the year, bottoming at 9.03 million bpd in August, but both June at 9.04 million bpd and July at 9.26 million bpd were also weak.
It seems implausible that actual fuel consumption has surged by 1.4 million bpd in the space of a few months, so some other factors must be at work.
That's not to say there hasn't been a rebound in oil demand, clearly the recent strength in industrial production and car sales, up 10.1 percent and 8.8 percent respectively in November, will be boosting fuel consumption.
But it's worth looking at the figures over the whole year, which started out with strength in apparent demand, followed by the mid-year slump and then strength again at the end.
January and February each saw apparent demand above 9.6 million bpd, and it exceeded 9.7 million bpd in September and October, prior to November's bumper month.
What appears to have happened is that Chinese refiners produced more fuel than needed in the first few months of the year, thus building up stockpiles, which were then run down during the period of mid-year weakness.
Currently refiners are using additional capacity commissioned to ramp up inventories once more to comfortable levels for the winter peak and to meet an increase in demand as economic growth regains momentum.
Refinery additions added about 410,000 bpd of capacity in October alone, and will likely total more than 900,000 bpd for the year as a whole.
Yet, inventories of gasoil were in October still about half of their peak in February, according to a research report by JPMorgan Global Commodities.
It would seem logical that some of the additional crude being refined is being used to bolster commercial stockpiles, meaning that the apparent demand is being overstated.
What is the current state of actual oil demand in China, since the assumption is that the apparent figures are too high.
The International Energy Agency's Nov. 13 report estimated actual demand at 9.5 million bpd over 2012, rising by 270,000 bpd to around 9.8 million bpd in 2013.
These figures reflected an increase of 70,000 bpd for 2012 demand, as the IEA acknowledged the faster growth evident in recent months.
However, the agency also said that the "dizzy" pace of apparent demand growth is unlikely to be maintained, and this report was released before the sharp acceleration in November.
What this points to is an easing in apparent demand once stockpiles have been rebuilt to comfortable levels.
This implies that Chinese refiners will reduce operating rates to more closely match output with actual consumption.
Of course, the obvious risk to this is that Chinese refiners become more active in exporting fuels, so watching the net product imports in the next few months will also be vital to gaining an accurate picture of the true state of oil demand.
- Clyde Russell is a Reuters market analyst. The views expressed are his own.