China has reduced purchase of Iranian crude oil over the past couple of months because of difficulties in price negotiations. The nation's Iranian crude oil imports in January fell 14% from a month earlier and decreased 5% from a year ago.
The following chart shows Japan's monthly Iranian crude oil import prices. CIF Japan Iranian crude oil prices are usually lower than Brent crude oil prices, since cheaper heavy-grade oil accounts for 40-45% of Japan's entire Iranian crude oil imports. However, Iranian crude oil frequently exceeded Brent prices during 2011 due to the Libyan civil war and strong demand from Japanese electricity sector.
It is natural that China claims to reduce contract prices for 2012 when Iran is likely to face further difficulties of selling its crude oil due to the Western sanctions.
The price negotiation is said to have finished in mid-February and Iranian crude oil shipments heading for China are expected to recover to the previous level of more than 550,000 barrels per day by April. Thus China's reduction of Iranian crude oil imports will fade after the first quarter this year.
China's Iranian crude oil import may surge because of the competitive prices. Increasing crude oil supply from other producers such as Saudi Arabia, Iraq, Libya and Russia may also help China to find its necessary oil easily.
Meanwhile, forecasts to the growth of China's crude oil consumption in 2012 are relatively moderate. Actually, statistics data for January showed sluggish results.
Chinese refiners' crude oil inputs in January rose only 1.9% from a year earlier to 36.2 million tonnes. The January growth rate was much lower than the 2011 average of 4.9%.
But the less growth in January is not strange because lunar new year holidays belonged to January this year. The one-week holidays belonged to February last year. China's crude oil imports in December fell 3.4% from a month earlier to 21.92 million tonnes, then imports rebounded to 23.41 million tonnes in January. Since imported crude oil is usually processed next month, China's crude oil inputs in February is likely to rebound.
Annual growth rate of China's apparent oil demand was 11.5% in 2010 and was 6.0% in 2011, while that in 2012 is expected at about 5%.
The country's gross domestic product increased 10.3% on year in 2010 and rose 9.2% on year in 2011. Oil industry players in China anticipate that the 5% growth of oil demand will meet the country's desired 8% GDP growth in 2012.
The 5% growth of oil demand may require about 8% growth of crude oil import because growth of China's domestic crude oil output is estimated to stay less than 2% on year. About 400,000 bpd of crude oil import may be added to the 2011 average of 5.1 million bpd.