OPEC’s Smallest Producer Sees Crude Oil Exports Drop To Zero
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New refining capacity coming online in China has lifted the prices of Middle Eastern crude oil grades to multi-year premiums that are pressuring refiners’ margins.
Bloomberg reports that the startup of the new facility of independent refiner Hengli Petrochemical Co. and of another one, property of Zhejiang Petrochemical Co., has pushed up Qatari crude to the highest price since late 2014, while Abu Dhabi’s Murban grade traded at $0.50 per barrel over its official price.
Chinese refineries have been processing oil at record rates for most of this year, thanks in no small part to the addition of new refining capacity by independent companies, the so-called teapots. Bloomberg reported in March that this year will see total additions of almost 900,000 bpd in refining capacity, which will continue to drive demand.
However, analysts expect the current price rally Middle Eastern grades are enjoying now to last only a short while. The reason is the most obvious one: higher prices are pressuring already strained refining margins across Asia. These were the result of higher freight rates as ship insurance became more expensive amid the heightened tensions in the Strait of Hormuz, and of excessive supply of fuels coming out of Chinese refineries. While freight rates have declined as tensions eased somewhat, oversupply of fuels remains a headwind.
Despite these margin troubles, Chinese oil imports once again surged to a record high last month, at 10.72 million barrels per day, up 11.5 percent on the year. This was the first time since April this year when imports topped 10 million bpd, spurred by the 400,000-bpd new refinery of Hengli Petrochemical and by Zhejiang Petrochemical’s facility, which has the same capacity.
Last month, Beijing issued higher oil import quotas for independent refiners, which will allow them to buy an additional 12.9 million tons (94.56 million barrels) of crude to provide feedstock for their new refineries.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
China’s crude oil imports are projected to hit 11 million barrels a day (mbd) this year. Moreover, China is continuing to import Iranian crude oil in increasing volumes in defiance of US sanctions.
The trade war with the United States which China won hasn’t dampened its insatiable demand for oil.
Tell this to the hapless International Energy Agency (IEA) which has been talking about a slowdown in global oil demand in its World Energy Outlook.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London