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By Bloomberg

Record oil imports by China may fail to boost oil prices as global oversupply overwhelms opportunistic buying by the world’s second-biggest user.

The country’s overseas crude purchases in July jumped nearly 30 percent to the highest monthly level on record on demand from filling strategic petroleum reserves. Meanwhile, net exports of products such as diesel jumped to a nine-month high, signaling weakening consumer demand. Brent crude fell as much as 0.8 percent to $48.24 a barrel on Monday, extending its 16 percent slide this year.

“The Chinese look to buy on the dip,” Mark Pervan, the head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a Bloomberg Television interview. “In this market, where the demand conditions aren’t so strong, they’ll be very opportunistic.”

Overseas purchases increased a second month to 30.71 million metric tons in July, equivalent to about 7.3 million barrels a day, according to data released by the Beijing-based General Administration of Customs on Saturday. Imports hit a record 7.4 million barrels a day in April.

The global oil market is facing a 2 million barrel a day oversupply, up from 1.8 million in the first half of this year, driven by a surge in production from Saudi Arabia, Iraq and Russia, analysts at Goldman Sachs Group Inc. said in a report last week.

Filling emergency inventories was estimated by Citigroup Inc. to account for 49 million barrels of imports in the first half of this year, or about 268,000 barrels a day. The government stockpiles will probably draw in an additional 100 million tons a year, or about 274,000 barrels a day, for the next four years, according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

‘Strategic Stockpiling’

“The majority of the increase in crude oil imports is triggered by further Chinese strategic stockpiling to exploit decade-low prices,” said Gordon Kwan, the Hong-Kong-based head of regional oil and gas research at Nomura Holdings Inc.

At the same time, the nation’s refiners processed a record 10.59 million barrels a day of oil in June, according to data from the country’s National Bureau of Statistics. Processing rates in July, which have not been released yet, were likely to be little changed near those levels, according to Amy Sun, an analyst with Shanghai-based researcher ICIS China.

That is putting pressure on refining margins and boosting oil product exports.

Product Exports

Net oil product exports -- which strips out imports -- increased to 610,000 tons last month, the highest since October, according to Bloomberg calculations based on the customs data. Growth in China’s diesel consumption, which represents 40 percent of domestic fuel demand, will be challenged by lower industrial output, especially among steel and cement producers, the largest users, Grace Lee, an analyst with Bloomberg Intelligence, said in a note on July 30.

“Exports are likely to remain strong due to increasing refinery runs and modest domestic demand and are exerting strong downwards pressure on Asian refinery margins,” Citigroup Inc. analysts including Ivan Szpakowski wrote in a report on Monday.

India, too, is filling its reserves, although to a much smaller extent. It bought two cargoes of Basrah Light crude oil from Iraq over the last two months to half fill the Visakhapatnam underground cavern that can hold as much as 9.75 million barrels of oil, Indian Strategic Petroleum Reserves Chief Executive Officer Rajan K. Pillai said in an interview on Aug. 4. The country is building two more caverns to hold an additional 29.4 million barrels of oil.