China Set To Slow Refinery Runs In Q3, Hurting Oil Demand Growth

China’s refineries are expected to shut nearly 10 percent of the country’s 15.1-million-bpd refinery capacity in the third quarter¬—the peak demand season—dampening prospects for global oil demand growth on which the market is pinning its hopes for drawing down the glut.

Grappling with domestic surplus of gasoline and diesel, some Chinese refineries are said to be cutting refinery runs in the third quarter, while others will shut for planned maintenance, Reuters reported on Wednesday, quoting sources at some of the refineries.

Major refineries of the top Chinese companies, including PetroChina’s Jinzhou, would be reducing their refinery runs by some 6,500 bpd in the third quarter compared to the second quarter. The 233,200-bpd Fushun refinery, again owned by PetroChina, shut down at the beginning of June for 45 days, Reuters’ sources say.

Another top Chinese refiner, Sinopec, is said to be mulling over cutting 230,000 bpd of refinery capacity, or around 5 percent of its average daily output for 2016, in what would be the second time it has reduced refinery runs in 16 years.

Planned maintenance at four state-held refiners and six independent refiners, the so-called teapots, is expected to shut in another 1.3 million bpd in the third quarter, Reuters reports, citing data by China Sublime Information Group.

All those cuts in refinery plans for the third quarter are expected to further pressure oil prices, which hit a seven-month low on Tuesday as fears of oversupply returned anew.

Related: 4 Wildly Different Oil Price Scenarios For 2020

Still, analysts and traders reckon that once the domestic oil products oversupply is cleared, China will return to buying more and more crude.

Earlier this week, China issued the second batch of import quotas for 2017 for independent refiners. Traders see China’s thirst for oil strong in the fourth quarter when the teapots are expected to use up all their import quotas.

“I’d expect improved buying now that teapot quotas have been released. If prices drop, China tends to buy more,” Oystein Berentsen, managing director at trading firm Strong Petroleum, which supplies Chinese refiners, told Reuters.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

• Iran: OPEC Considers Cutting Deeper As U.S. Shale Beats Forecasts
• Sinking Louisiana: A Major Threat To Billions In Oil Infrastructure
• Oil Market Gauges Shake-Up In Saudi Royal Succession