China's crude oil imports dropped to their weakest in four months in November, showing how high prices trumped bullish demand forecasts from leading industry participants such as OPEC and the International Energy Agency (IEA).

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China, the world's largest oil importer, saw arrivals of 42.445 million metric tons, equivalent to 10.33 million barrels per day (bpd), according to data released Thursday by the General Administration of Customs.

This was down 10.4 per cent on a barrels-per-day basis from October's 11.53 million bpd, and 9.3 per cent weaker than the same month a year earlier.

China was supposed to be the driving force behind global oil demand growth this year, contributing the lion's share of a 2.3 million bpd increase forecast by the IEA last month and a 2.46 million bpd rise expected by the Organization of the Petroleum Exporting Countries (OPEC).

China's crude oil imports gained 12.1 per cent in the first 11 months of the year, which appears a robust increase. It works out, however, as a rise of 1.21 million bpd, well below an IEA forecast of Chinese demand growth of 1.8 million bpd for 2023.

Of course, demand growth and import growth aren't exactly the same thing, but China's domestic crude output is only modestly higher so far in 2023. And despite drawing on stockpiles in three of the first 10 months in 2023, China has actually built up its inventories this year.

China doesn't disclose the volumes of crude flowing into or out of strategic and commercial stockpiles, but an estimate can be made by deducting the amount of crude processed from the total of crude available from imports and domestic output.

The total volume of crude available to refiners from imports and domestic output in the first 10 months of 2023 was 15.54 million bpd, but refinery processing was 14.86 million bpd, meaning approximately 680,000 bpd was added to storage tanks.

The weaker crude oil imports in November fit a pattern that refiners tend to ease back on purchases when they deem prices are too high or have risen too quickly.

PHYSICAL CARGOES

The time period when November cargoes were being arranged coincided with oil prices surging to their highest so far for 2023, with global benchmark Brent futures peaking at $97.69 a barrel on Sept. 28.

Crude prices rallied from late June to the end of September after OPEC's de facto leader Saudi Arabia announced a voluntary production cut of an additional 1 million bpd, with OPEC+ ally Russia adding a further 300,000 bpd.

Given that crude cargoes are usually fixed months in advance, it should be no surprise that China's refiners trimmed imports in the face of rising prices.

The weakening in Brent futures since the September highs will also likely take several months to show up in a recovery of China's oil imports, as the crude arriving in December and for much of January would still have been bought at higher prices.

What OPEC and the IEA appear to have discounted is that China has built up its options through boosting its crude inventories over the preceding years.

It has shown a willingness to draw on stockpiles if needed, and slow import growth to mitigate the supply restrictions being implemented by the wider OPEC+ group of exporters.

High levels of inventories may have helped China on crude oil, but the opposite factor can be seen at work in their imports of iron ore.

Iron ore imports were 102.74 million tons in November, up 3.4 per cent from October and 3.9 per cent from the same month in 2022.

The increase in arrivals of the key raw material to produce steel came even as spot prices were rising, with Singapore-traded contracts gaining 29 per cent from a recent low of $103.21 a ton on Aug. 3 to the close on Wednesday at $133.05.

But China's port stockpiles of iron ore have been weak, hitting a seven-year low of 105.15 million tons in the week to Oct. 20, and they have only risen marginally since then to 108.5 million tons last week.

Of course, inventory levels and prices aren't the only factors driving China's commodity imports, but they are worth keeping in mind as the correlation appears strong, once the time lag of physical cargo movements is taken into account.

The opinions expressed here are those of the author, a columnist for Reuters.