Refinery slowdown, China edition
Posted by Izabella Kaminska on Mar 05 10:46.
Vienna-based energy consultants JBC Energy have turned our attention to an interesting story on Friday.
According to Reuters, Chinese refineries will be scaling back crude runs by a sizeable 5.6 per cent in March.
As the wire reported on Thursday:
BEIJING, March 4 (Reuters) – China’s top refineries will cut crude runs this month by 5.6 percent from record rates in February as plants take turnarounds to trim swelling stocks.
Twelve major plants accounting for more than a third of China’s total crude run capacity, most of them on the eastern and southern coast, plan to process 2.175 million barrels per day (bpd) crude in March, 161,000 bpd less than February, a Reuters poll showed.
Oil firms were anxiously waiting for a strong uptick in fuel demand after a lull since late January through February as cold winter weather and Lunar New Year holiday slowed industrial activities and construction works.
The cut in runs was put down to swelling product stocks.
This would suggest refinery runs, which are supported by state guaranteed margins in China, have now surpassed domestic needs, according to JBC Energy.
And, as it comes against a strong increase in exports in recent months, it’s something that could be very reflective of the state of domestic product demand in China.
As Reuters reported, Chinese refineries have now been operating at top rates since last September, largely on signs that an economic recovery was coming through — but also because the country’s pricing system protected margins when crude was under $80 per barrel. However, as Reuters noted:
…the supply build appeared to have outpaced demand growth, as inventories of major oil products climbed for the third month in the row in January despite months of hefty fuel exports.
The other issue, of course, is that the buildup comes against ample product stockpiles in the Western world.
Gasoline stocks in the European Amsterdam-Rotterdam-Antwerp hub, for example, jumped by more than 26 per cent on Thursday to 8.23m barrels, a figure just shy of the 8.8m barrel inventory hit in mid-February, itself the highest level since May 2008.
Europe, of course, has been a net exporter of gasoline product for a long time. The problem comes in the fact that the US market — one of the major outlets for European exporters — has been experiencing declining demand all year, too.
With dynamics like this, JBC predicts the US could become a net gasoline exporter by 2017.
All of which would lead to an increasingly competitive gasoline export market with very few markets left to soak up the slack. As JBC noted, even Iran — another weighty importer in recent years — is turning itself around:
Consequently European exports to North America (incl. Mexico and Canada) will almost halve between 2008 and 2018. Also, rising refining capacity in the Middle East will reduce the export potential from Europe to the region by the middle of the decade.
JBC Energy expects Iran to become a net-exporter of gasoline at around that time, while gasoline import requirements from Saudi Arabia will also vanish.
What that means for oil prices on in the longer term should be evident. What it means for gasoline export dynamics, meanwhile, could look something like this according to JBC:
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