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China’s Oil Giants Continue Output-Cutting Drive

Oil storage tanks

Chinese crude oil output fell by 9.8 percent in September to 3.89 million bpd in continued efforts to rein in costs amid the persistent price rout. The total September output of the country stood at 15.98 million tons as the state-owned majors shuttered more fields where production costs remained too high to justify production.

China is among the world’s top five producers, and according to one analyst from SIA Energy, as quoted by Reuters, the current low crude prices provide a “good excuse” for the state-owned companies to curb their activities at some of the most inefficient oilfields in the country, among them Daqing – the largest in China – and Shengli, in eastern China.

Daqing, operated by CNPC, has been generating losses since the oil price slump started to really hurt. In April this year, Xinhua reported that the field had lost its operator US$740 million (5 billion yuan) in just the first two months of the year. The field has been in exploitation for six decades.

The other huge field that has been shuttered gradually, Shengli, is the property of another Chinese supermajor, Sinopec, and has also been in operation for decades. In February of this year, Sinopec shut down four sites at the field – the worst-performing ones – in a bid to curb its losses there. According to the company at the time, the shutdown would save it some US$20 million annually in costs. Last year, Shengli generated losses of US$1.4 billion.

It is a fairly plausible theory that these excessive production costs have driven China to join the negotiations of an output cut that were initiated by Saudi Arabia last month. Earlier today, the Saudi oil minister, Khalid al-Falih, said there were discussions with non-OPEC members willing to join the effort to bring oil markets back to balance in fundamental terms. Although Al-Falih declined to name any of these non-OPEC producers, China might be one of them.

By Irina Slav for Oilprice.com

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