Global oil refiners brace for change as China cements market dominance

Dhaka,  Thu,  21 September 2017
Published : 04 Aug 2017, 21:11:50

Global oil refiners brace for change as China cements market dominance

Prices slide on high OPEC supplies, rising US output
BEIJING, Aug 4 (Reuters): China is on pace to overtake the United States (US) as the world's biggest oil importer this year, cementing its status as Asia's most pivotal oil market actor that will increasingly dominate the region's fuel trade.

For the first time, China imported more crude oil in the first half of the year than the US, government statistics showed. China averaged 8.55 million barrels per day (bpd) versus 8.12 million bpd in the US, a trend that is expected to last.

The shift highlights the change in the centre of gravity in global oil markets from West to East. Chinese state-run oil trader Unipec is now the world's biggest physical oil trader. By drawing more of the world's oil to its shores, China, the second-biggest oil consumer after the US, will play a crucial role in setting the global price of the commodity, especially as the crude futures market in Shanghai develops.

China's import surge is being driven by the expansion of its refinery capacity. But, as the domestic demand has not materialised to soak up the fuel supply, China's exports of gasoline and diesel have climbed to record highs. This flood of products has caused headaches for competitors across Asia and depressed diesel profit margins to multi-year lows in 2016.

"China is putting a lot of pressure on the traditional export hubs of Taiwan, Korea and Singapore to capture the market share within Southeast Asia and Australia," said Joe Willis, senior research analyst, Asia refining, at energy consultancy Wood Mackenzie.

The trend of more refining capacity and higher exports is set to continue.

China plans to add at least 2.5 million bpd of refining capacity by 2020, according to a recent presentation from China Petroleum & Chemical Corp, or Sinopec. Sinopec is Asia's biggest oil refiner and the parent of Unipec.

This year, PetroChina Ltd will start a 260,000 bpd refinery in Yunnan in southern China while China National Offshore Oil Corp will start up a 200,000 bpd expansion at its existing Huizhou plant in Guangdong province. The start ups will add 350,000 bpd of new Chinese capacity in 2017 though both plants will not reach full capacity until 2018.

Exports of gasoline from China are expected to increase by at least 10,000 barrels per day this year from 2016, driving overseas gasoline sales to between 235,000 bpd and 240,000 bpd this year and about 330,000 bpd in 2018, estimates from consultants FGE and Wood Mackenzie showed.

Unipec is leading the way in targeting new overseas markets, moving jet fuel from Singapore to northwest Europe in June for the first time in several years. Meanwhile, Chinese diesel shipments in 2017 have more than doubled to France, more than quadrupled to Italy and the country shipped diesel to Kenya for the first time this year.

Export-oriented refiners in Singapore, South Korea and Taiwan will be most affected by the Chinese competition.

Another report from Singapore adds: Oil markets were little changed on Friday, with US crude remaining below $50 per barrel, restrained by rising output from the United States as well as producer club OPEC.

US West Texas Intermediate (WTI) crude futures were at $48.95 per barrel at 0707 GMT, down 8.0 cents, or 0.1 per cent, from their last close and set to drop 1.5 per cent for the week.

Brent crude futures, the international benchmark for oil prices, were at $51.92 a barrel, down 9.0 cents, or 0.2 per cent, from their last close and set to drop 1.0 per cent for the week.

Traders said prices were pressured by rising output, although strong demand prevented bigger drops.

"Developments this week have seen some pessimism return to markets," National Australia Bank said in its August outlook. "We forecast Brent to trade at around $53 per barrel in Q4 2017," it said.

Barclays bank said "we expect a downward (price) correction during this quarter," but see Brent at an average of $54 per barrel during the fourth quarter.

Crude oil exports by the Organisation of the Petroleum Exporting Countries (OPEC) rose to a record high in July, according to a report by Thomson Reuters Oil Research this week.

July's 26.11 million barrels per day (bpd) in exports marked a rise of 370,000 bpd, most of which came from Nigeria, which posted a rise of 260,000 bpd in shipments.
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