China refiners cut oil output as thin margins, quota shortage bite

INA-sources
 
China's oil refinery utilisation rates are easing from record third-quarter levels as thinning margins and a shortage of export quotas discourage plants from raising output for the rest of 2023, according to traders and industry consultancies.
 
The drop in refining output could reduce crude demand from the world's top importer and cool its fuel exports, capping global crude prices but supporting refined product prices and refining margins in Asia.
 
China is expected to process 15.1 million barrels per day (bpd) in November, down from 15.37 million bpd in October, consultancy FGE said, primarily because of run cuts at small independents, known as teapots, and state refiners.
 
"Refineries should be mulling marginal run cuts due to limited export quotas left for the remainder of this year," Mia Geng, FGE's head of China oil analysis, told Reuters, referring to state refiners.
 
"On top of that, we are already seeing stockbuilds for transportation fuels on weakening demand."
 
State refiners, which cashed in on lucrative fuel exports earlier in the year, see little incentive to boost throughput as Beijing is unlikely to release more fuel export permits this year.
 
State-run refiners will likely cut this month's throughput by about 7% from October rates to between 9.69 million and 9.95 million bpd, according to estimates by Chinese consultancy JLC and Longzhong.
 
"Margins are almost disappearing as we're processing higher-priced crude while demand for refined fuel is weakening," said an official at a Sinopec (600028.SS) refinery, declining to be named, adding his plant is trimming runs by about 20,000 bpd this month to the lowest level this year.
 
"Poor industrial demand for petrochemicals is not helping."
 
Consultancy Energy Aspects trimmed its forecast for China refining runs in November and December by 100,000 bpd to average 15.65 million bpd in the fourth quarter.
 
During the two months, China's exports of clean products such as gasoline, diesel and jet fuel could also halve to 2 million metric tons per month in the absence of additional quotas, it added.
 
"Our Q4 runs forecasts are facing more downward pressures given recent teapots runs cuts driven by both plunging margins and crude import shortage," analyst Sun Jianan told Reuters in an email reply.
 
Source: Reuters