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Fuel oil imports into China rose slightly to 2.20 million tonnes in May, up 70,000 tonnes on the previous month, as surging prices reduced demand from power companies.

The rise in crude oil prices has lead market sources to forecast that demand will decrease this month, with a 15-20 percent drop in inflows expected in June.

China imported a total of 8.59 million tonnes of fuel oil between the months of January and May, putting its monthly average at approximately 1.72 million tonnes. The figure is still around 1 per cent lower than average monthly import volumes in 2007 as high import costs have stifled demand from local power plants and refineries.

The world's second largest oil consumer and Asia's leading buyer of fuel oil has actively shopped around the market this year as competition for fuel oil from other countries has increased.

Russian fuel oil imports into China fell by approximately 60 percent to 150,000 tonnes in March 2008 as Chinese traders have been forced to look for alternative product sources whilst Japan continues to outbid them for Russian fuel oil cargoes. Japanese refiners have been using Russian straight-run M100 fuel oil as an alternative blending component to crude oil in an attempt to reduce refining costs.

Last month China purchased approximately 520,000 tonnes of fuel oil from Venezuela, more than double the 206,000 tonnes imported in April. Shipments from the Middle East rose in the same month to about 598,000 tonnes from 452,000 tonnes.

Meanwhile, independent refiners in the north of China made a rare purchase of 320,000 metric tonnes of fuel oil from Singapore in April. This was the first time in almost 12 months that refiners in the north of China purchased fuel oil cargoes from the Singapore market, according to market sources.

Despite government subsidies to about 30 power plants in the southern province of Guangdong, China's manufacturing hub, demand for fuel oil from southern China has dropped after an initial buying spree by utilities in March and April. Power plants in Guangdong purchased around 1 million tonnes of fuel oil in May versus 1.2-1.4 million tonnes the previous month.

Demand is reported to be so poor at present, that a fuel oil cargo purchased from Venezuela's PDVSA was said to have been diverted by Petrochina earlier this month. The Very Large Crude Carrier (VLCC) carrying 270,000 tonnes of fuel oil was scheduled to discharge in Huangpu in early June, but was instead sent to Singapore.