Home › Forums › Refining Community › Refinery News › China top refinery cuts output despite shortages
This topic contains 1 reply, has 2 voices, and was last updated by Charles Randall 15 years, 4 months ago.
November 1, 2007 at 5:00 pm #3898
BEIJING/SHANGHAI, Oct 30, 2007 Reuters – China’s largest refinery Zhenhai Refining & Chemical Co Ltd will shut a crude distillation unit in November for a one-month planned turnaround, an industry official said.The closure comes as the country faces its worst diesel shortage in four years, which has caused rationing on the east coast.
Zhenhai refinery, a unit of state refiner Sinopec Corp , will switch off a 100,000 barrel per day crude unit in November and is expected to process 379,600 bpd, 3 percent less crude than in October, the refinery official told Reuters.
By cutting output at a time of such shortage, Sinopec, Asia’s largest refiner, may be sending a signal to the government that it needs to ease its tight controls on retail pump prices, industry officials say. Refiners face losses in China as they cannot pass on the increased costs from record oil prices to consumers.
China’s economic planners, fearful of stoking social unrest as inflation nears a decade-high, have repeatedly ruled out an imminent fuel price hike despite oil prices hovering near a record $94 a barrel. Beijing last raised retail fuel prices 17 months ago.
A dozen gas stations in Shanghai, mostly run by Sinopec, told Reuters on Tuesday they had run out of diesel, and witnesses reported long queues of trucks desperate for refills blocked roads in eastern port city of Ningbo, extending a supply squeeze that started almost two weeks ago that hit most of coastal provinces.
“The diesel for today is already sold. I don’t know when tomorrow’s shipment will come,” said a staff in a Shanghai gas station. Sinopec said it was under growing pressure to supply more diesel, and blamed the shortage on decisions by independent refineries to cut production due to rising losses.
“Because of rising global oil prices since the third quarter and the capped oil product prices in China, some independent service stations stopped selling diesel, adding pressure for Sinopec to secure supply,” Sinopec’s Chief Financial Officer Dai Houliang told investors on Tuesday when announcing a 5.5 percent rise in third-quarter earnings.
China’s small local refineries, which supply nearly 15 percent of the world’s second-largest oil market, have cut output as they cannot pass on surging oil costs to rigidly capped Chinese fuel markets.
Zhenhai’s maintenance work comes after a string of shutdowns in September when state-run oil plants launched heavy off-season maintenance to trim losses. The closures limited last month’s national throughput growth to 5.7 percent, the lowest in six months.
November 1, 2007 at 5:09 pm #7197
China’s continued problems of high & rising crude prices crashing into capped gasoline & diesel prices is going to bring some crude price relief in the near future Crude prices are causing rate cuts and shutdowns in China refineries despite increasing demand fuel product shortage.
Already in US Goldman Sac’s recommended their clients take profit on oil price futures since crude price has declined for 3 days, Mexico’s offline production will be back online in 36 hours and the US oil inventories have just risen to 400 MBBL.
OPEC may lost concern on controlling prices ever since major supply shifts moved a majority of its crude into China & Asian sectors but causing damage of this level to its largest supplier will produce future problems. Past learnings of constant OPEC revenue = high prices with low volume = high volume with low prices Plus the additional kick that the periods of high prices ramp up alternate supply production which result in lost market share.
Even though China’s 14 domestic inland oil fields have declining conventional crude supplies that opened China to large volumes of Middle East imports – an important consideration for OPEC should be that nearly all the 14 domestic crude fields have large volumes of heavy crude reserves. This is reason China has been actively involved in Canadian Bitumen projects and Venezuelan syncrude & Orimulsion supply, which it will no doubt adapt to its own fields in future after some infrastructure investments.
One real questions around price ramps obviously caused by supply fears & fanned by Mutual fund traders / Goldman type clients – is why are integrated oil companies allowing them to continue to do this to the market? There isn’t an oil company in the US that hasn’t had their crude trading sections destroyed by drifting into speculative trading that did not have physical barrels to back up the hedges….so there can be little doubt that the volatility is not driven solely by the Mutual fund trading “expertise” with volatility….sorry have to call Bullshit on these newbie’s ever being in same weight class as Oil companies Crude traders So I have to believe the Integrated Oil companies have to be going along with riding these cycles & believing their upstream profits will off-set the downstream losses during times (like recent 3Q07) when crude prices rose new highs but gasoline & diesel prices remained ~ flat.
Surely someone in Integrated Oil companies financial sections can put the two together and see the hit to both product volume & margins are eating up a lot of the revenue while fast forwarding a switch to alternate fuel sources and justifying increases in both taxes and royalties. Unfortuantely these analytical skills in financial sectors seem to have been outsourced / lost if companies like BP decide the way to improve financial losses like they suffered in 3Q07 from above reasons + safety &downtimes – is to cut jobs & re-organize.
Having all this money extracted from Energy industry due traders not invested in the industry, no assets or raw materials at risk is huge waste of opportunity, de-railment for Long Term plans and Sustainability. So I guess it is up to some independent oil companies like Valero/Anadarko to place some physical barrels counter to the market and extend true oil market lessons on hedging oil industry without any physical barrel positions as alternate.
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