China Crude Buying Seen Buoyed As Output Drop Lures Imports
(Bloomberg) -- China’s crude oil imports may rise further in the coming months as tumbling domestic output leaves refiners looking overseas for supplies, helping ease a persistent global glut.
Imports by the world’s second-biggest consumer may extend last month’s rebound as the country’s oil processors come out of their peak maintenance season while domestic output falls further after sliding to the lowest in more than six years, according to analysts from Natixis SA and Energy Aspects Ltd.
“The extent of decline in crude production is quite astonishing,” Michal Meidan, a London-based analyst with Energy Aspects, said by phone. “Naturally, such a gap in supply will be partly made up with imports.”
Production in August dropped 9.9 percent from a year ago to about 3.89 million barrels a day, the lowest since December 2009, according to Bloomberg calculations of National Bureau of Statistics data released Tuesday. Output is down 5.7 percent during the first eight months of the year.
China, which was the world’s fifth-biggest producer last year, has been pumping less as state-run companies shut fields too expensive to operate after prices fell earlier this year to the lowest since 2003. The country is forecast to lead production declines across Asia, forcing the world’s largest-consuming region to rely more on overseas supplies.
The impact of rising Chinese imports on the global oversupply could be muted as stockpiles are seen continuing to accumulate, and the surplus is seen persisting into late 2017, the International Energy Agency said Tuesday.
“China will undoubtedly have to import more oil to meet the seasonal increase in refinery runs later this year,” said Abhishek Deshpande, chief energy analyst at Natixis SA in London. “This should not shock the market as the global market is well supplied,” he said.
China’s crude oil imports increased to about 7.77 million barrels a day in August, the highest in four months, according to General Administration of Customs data released September 8. Imports during the first eight months of the year are up more than 13 percent.
“Falling crude production supports rising imports through the rest of this year, coupled with strategic oil stockpiling and increased demand from refiners coming out of maintenance season,” Amy Sun, an analyst with commodities researcher ICIS-China, said by phone.
Production declines will accelerate in the final four months of the year, Sun said, with monthly crude output averaging 16.25 million tons, while oil imports average 32 million tons.
Refinery runs averaged 10.47 million barrels a day in August, Tuesday’s data showed, the slowest in three months as processors shut units during the peak of the country’s maintenance season, which ends in September.
The country’s biggest producer, PetroChina Co., cut its 2016 domestic crude output target to 103 million tons (about 2.06 million barrels a day), a drop of about 6 percent from the previous year, as it shuts some high-cost fields. Production from China Chemical & Petroleum Corp., known as Sinopec, is on track to shrink by a similar amount to about 763,000 barrels a day, company forecasts show.
“China’s crude output won’t see an apparent rebound unless Brent recovers to $60 a barrel level, as most of China’s aging oilfields can’t make a profit below this price,” said Tian Miao, an analyst in Beijing with policy researcher North Square Blue Oak Ltd.
Brent crude, the global benchmark, has lost about half its value in the past two years. Prices have averaged almost $43 a barrel this year, compared with $99 in 2014. The global benchmark was up 0.3 percent at $47.26 a barrel at 10:38 a.m. in Hong Kong.
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