China is determined to rid itself of its image as one of the world’s greatest polluters, and is serious about curbing oil production—even if only for a few days—to clean up its air during the international G-20 meeting in Hangzhou next month, ordering factories to reduce activities to curb crude oil consumption to such a degree it shall be felt around the world.
This latest initiative, coupled with a barrage of floods this summer, will slash China’s daily demand for crude by 250,000 barrels, according to Bloomberg, citing Energy Aspects.
The cut comes after a very strong first half of the year for crude imports, largely driven by teapot refineries. It was this strong demand that helped push oil higher after the sub-$30 level oil in early 2016, supported by production outages in Canada, Nigeria, and Libya. Now that the market has swallowed the uncertainty of Nigerian and Libyan supplies, and Canada has dealt with the May wildfires, it is Chinese demand—the world’s second largest oil consumer—that could help sustain the oil price rally. That leg-up that China gave the oil market will soon disappear, at least temporarily.
Whenever there is a major international event in China, be it the 2008 Olympics or the 2014 APEC meeting, China’s oil imports fall very sharply, and there is no reason why the G-20 meeting should be an exception. But this time, the scale of the anti-pollution efforts is larger.
Wood Mackenzie analyst Salmon Aidan Lee told Bloomberg that, “The rationale is that you have to shut down in order to achieve absolutely clean air. Shutdowns have happened before during APEC meetings in Beijing and the Olympic Games many years ago. What is unprecedented is the scale or magnitude of this shutdown.”
Some 700 companies, including coal-fired power plants, oil refineries and petrochemical plants in the vicinity of Hangzhou have been ordered to suspend or curb operations between August 24 and September 6. The effects of this measure, however, should be temporary, just like the measure itself, and according to some analysts, oil consumption in China should remain overall stable in the third quarter, perhaps even inch up.
By Irina Slav for Oilprice.com
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