UPDATE: China's Crude Run Cuts May Not Be Bearish Signal
SINGAPORE (Dow Jones)--China plans to trim some of its refinery operating rates this month, but this alone may not necessarily be a strong signal that demand from Asia's runaway oil consumer has slowed.
Sinopec Zhenhai Refining & Chemical Co. (1128.HK), China's largest oil refinery, plans to process 1.47 million metric tons of crude oil this month, down from a record 1.48 million tons in June, according to a source.
This is the equivalent of 347,600 barrels a day, down from 361,600 b/d in June, which is approximately the plant's nameplate capacity.
Several large refineries along the country's coast have also scheduled run cuts this month, a trend that has raised some eyebrows in the industry.
Strong Chinese demand for oil has been a major factor behind the run-up in benchmark prices. New York crude futures hit a record high of $60.95 a barrel Monday, on concerns that supply may not keep pace with bullish consumption growth later this year in key markets such as the U.S. and China.
Although prices have since retreated, they're still nearly 45% higher in the past one year.
Significantly, however, China's refinery runs alone don't tell the whole demand story.
Refinery operations are being reduced from already-high rates. The country processed 24.56 million tons of crude in May, 6% more than a year earlier, according to the National Bureau of Statistics.
This brought the January-to-May tally a sizable 8.3% higher compared with the same period last year.
Also key is how much oil refiners are holding in storage.
Beijing doesn't release data on oil inventories, but stock levels are understood to be near capacity given high crude imports and a slowdown in domestic products sales.
State-owned oil companies have come under pressure from a breakdown between products prices in the tightly controlled domestic market and sky-high international prices.
This has cut into profits and should encourage stockpiling - implying this month's run cuts aren't particularly out of line.
Crude imports, meantime, were up a firm 5.1% on year between January to May at 52.3 million tons despite sharply higher prices, while domestic crude production was up 5% at 74.81 million tons.
Further evidence of a lack of room to store oil was seen earlier this week, when state-owned Unipec emerged to offer some of its term crude cargoes on the spot market.
China's total oil demand is forecast to rise 7.1% this year to 6.89 million b/d, according to the International Energy Agency, the OECD watchdog.
While this is well short of the 15.4% jump in 2004, that year's increase was compared with a low base for 2003, when much of the region's economic activity - and oil demand - was hit by the SARS epidemic.
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