China's implied crude oil demand has fallen 1.6% y-o-y to 9.62 mb/d in September, the first year-on-year decline of 2013 and recovery in demand could occur by end of Q4, 2013, according to Barclays Research.

Consumption rose 2.6% from August bottom of 9.37 mb/d. China's oil production fell to 9.43 mb/d while net product imports eased from levels one year ago.

YTD Chinese oil demand now averages 9.79 mb/d, 4.4% higher y/y. Preliminary data from the National Development and Reform Commission suggest that product stocks have fallen modestly in September, which may help lift final demand numbers slightly, in our view. China’s crude imports, on the other hand, rose sharply in September to 6.27 mb/d, likely driven by restocking.

Many refineries may have had an extended August-September maintenance schedule and that combined with a small draw in product stocks, point to a softer demand.

Barclays expects demand to improve gradually. Seasonal demand growth in heating fuels (primarily gasoil and fuel oil) before winter, and the commissioning of two new refineries.

In terms of real demand, rising commercial vehicle sales could support diesel usage. Passenger vehicle sales have also improved over Q3, growing by 4.2% on average; compared to the (3.2%) increase in Q2 and (3.9%) increase in Q3. Comparisons could still be difficult, however, as last year’s capacity addition and runs were concentrated towards year-end. Our economists' forecast that China’s GDP growth could slow to 7.1% in 2014 also suggests a soft outlook.