BEIJING - China's apparent oil demand fell last month for the first time in nearly three years as the world's second-largest energy consumer succumbed to the global economic crisis, data showed on Monday.
Long a major engine for rising crude oil markets, China now risks becoming a further drag on prices that have already tumbled more than $100 a barrel from their July peaks as it joins the United States and Japan in registering shrinking use, with worldwide economic woes taking a greater than expected toll.
Chinese oil production and trade figures released on Monday showed the effects of an export-led slow-down in economic growth coupled with domestic fuel prices that haven't been reduced since a shocking 18 percent increase back in June.
Chinese refiners, facing bulging domestic inventories and anemic sales, cut back operations last month to 2.3 percent below a year ago, the biggest such decline since mid-2003, confirming an earlier Reuters survey of the country's top plants.
Refinery runs by the major refiners, mainly Sinopec (0386.HK: Quote, Profile, Research, Stock Buzz) (600028.SS: Quote, Profile, Research, Stock Buzz) and PetroChina (601857.SS: Quote, Profile, Research, Stock Buzz) (0857.HK: Quote, Profile, Research, Stock Buzz), fell to 27.27 million tonnes (6.63 million barrels per day) in November, down 8.5 percent from October to the lowest rate since May. They are expected to drop again in December.
For a graphic showing China's refinery runs click on: here
"High fuel stocks and worsening prospects in petrochemicals were taking a toll on refining sector," said Qiu Xiaofeng, an analyst with China Merchants Securities.
A Reuters calculation based on preliminary refining and trade data showed that China's demand likely contracted by about 3.5 percent compared to November 2007. The figures do not take into account changes in industry inventories, so may be skewed lower by the effect of companies drawing down record-high stockpiles.
For a graphic showing China's oil demand growth, click here Part of the decline can be attributed to rising output from small-scale refiners who aren't captured by official data, many of whom are revving up operations now that the state-controlled fuel prices offer a huge profit over global rates.
SHOCKING TURN
But even so analysts said it was a shocking turn for a country that just a few months ago had to import record amount of gasoline and diesel to keep up with demand, and which has fueled a third of the global increase in oil demand since 2003.
Analysts at Goldman Sachs, once the market's most bullish, said last week that the outlook for oil and other commodities has been cowed by the global crisis, and that deeper supply cut-backs are needed to balance rapidly declining demand.
They forecast that China's oil demand would shrink by a net 200,000 barrels per day next year, and others said November's data was all the more alarming given rising capacity.
"The decline was prominent considering that some new refining capacity had been brought on line this year and activity by independent refiners had revived in recent months," said Qiu.
With demand now sated at home, China exported 280,000 tonnes of gasoline in November, up 28 percent from a year ago, and imported none at all, according to preliminary Customs data. It imported a marginally 10,000 tonnes of diesel.
Fuel oil imports climbed by almost a quarter on a net basis from a year ago, as China's independent "teapot" refiners -- which rely on fuel oil instead of crude -- rushed to buy.
Their profits are likely to shrink dramatically from January 1, when reforms of China's fuel pricing system come into force.
Although the reforms will partially liberalize prices, the government is taking advantage of the huge disparity between domestic fuel prices and crude oil to introduce a large element of direct tax into pump prices.
Facing competition from private oil firms, state-controlled giants Sinopec and PetroChina, which normally stick to fuel price ceilings set by Beijing, were reportedly also beginning to lower fuel rates in some regions.
BLEAK MIDWINTER
The slowdown in petrochemicals, one of the main casualties of China's economic deceleration, may have forced refiners to churn out more gasoline instead, helping eliminate imports.
Even as they cut production China's refiners were able to draw more heavily on domestic crude, with oilfield production rising at an unusually high rate of 4.9 percent in November to 15.86 million tonnes. Figures last week showed crude imports shrank last month by 1.8 percent to 3.25 million bpd.
With the global situation worsening and China's stimulus measures likely to do more for raw materials demand than oil products, analysts were bracing for more bearish data to come.
"The decline (in crude processing) is likely to be followed by several others before economic activity recovers seasonally in March," said Hongyuan Securities analyst Liu Youcheng.
Long a major engine for rising crude oil markets, China now risks becoming a further drag on prices that have already tumbled more than $100 a barrel from their July peaks as it joins the United States and Japan in registering shrinking use, with worldwide economic woes taking a greater than expected toll.
Chinese oil production and trade figures released on Monday showed the effects of an export-led slow-down in economic growth coupled with domestic fuel prices that haven't been reduced since a shocking 18 percent increase back in June.
Chinese refiners, facing bulging domestic inventories and anemic sales, cut back operations last month to 2.3 percent below a year ago, the biggest such decline since mid-2003, confirming an earlier Reuters survey of the country's top plants.
Refinery runs by the major refiners, mainly Sinopec (0386.HK: Quote, Profile, Research, Stock Buzz) (600028.SS: Quote, Profile, Research, Stock Buzz) and PetroChina (601857.SS: Quote, Profile, Research, Stock Buzz) (0857.HK: Quote, Profile, Research, Stock Buzz), fell to 27.27 million tonnes (6.63 million barrels per day) in November, down 8.5 percent from October to the lowest rate since May. They are expected to drop again in December.
For a graphic showing China's refinery runs click on: here
"High fuel stocks and worsening prospects in petrochemicals were taking a toll on refining sector," said Qiu Xiaofeng, an analyst with China Merchants Securities.
A Reuters calculation based on preliminary refining and trade data showed that China's demand likely contracted by about 3.5 percent compared to November 2007. The figures do not take into account changes in industry inventories, so may be skewed lower by the effect of companies drawing down record-high stockpiles.
For a graphic showing China's oil demand growth, click here Part of the decline can be attributed to rising output from small-scale refiners who aren't captured by official data, many of whom are revving up operations now that the state-controlled fuel prices offer a huge profit over global rates.
SHOCKING TURN
But even so analysts said it was a shocking turn for a country that just a few months ago had to import record amount of gasoline and diesel to keep up with demand, and which has fueled a third of the global increase in oil demand since 2003.
Analysts at Goldman Sachs, once the market's most bullish, said last week that the outlook for oil and other commodities has been cowed by the global crisis, and that deeper supply cut-backs are needed to balance rapidly declining demand.
They forecast that China's oil demand would shrink by a net 200,000 barrels per day next year, and others said November's data was all the more alarming given rising capacity.
"The decline was prominent considering that some new refining capacity had been brought on line this year and activity by independent refiners had revived in recent months," said Qiu.
With demand now sated at home, China exported 280,000 tonnes of gasoline in November, up 28 percent from a year ago, and imported none at all, according to preliminary Customs data. It imported a marginally 10,000 tonnes of diesel.
Fuel oil imports climbed by almost a quarter on a net basis from a year ago, as China's independent "teapot" refiners -- which rely on fuel oil instead of crude -- rushed to buy.
Their profits are likely to shrink dramatically from January 1, when reforms of China's fuel pricing system come into force.
Although the reforms will partially liberalize prices, the government is taking advantage of the huge disparity between domestic fuel prices and crude oil to introduce a large element of direct tax into pump prices.
Facing competition from private oil firms, state-controlled giants Sinopec and PetroChina, which normally stick to fuel price ceilings set by Beijing, were reportedly also beginning to lower fuel rates in some regions.
BLEAK MIDWINTER
The slowdown in petrochemicals, one of the main casualties of China's economic deceleration, may have forced refiners to churn out more gasoline instead, helping eliminate imports.
Even as they cut production China's refiners were able to draw more heavily on domestic crude, with oilfield production rising at an unusually high rate of 4.9 percent in November to 15.86 million tonnes. Figures last week showed crude imports shrank last month by 1.8 percent to 3.25 million bpd.
With the global situation worsening and China's stimulus measures likely to do more for raw materials demand than oil products, analysts were bracing for more bearish data to come.
"The decline (in crude processing) is likely to be followed by several others before economic activity recovers seasonally in March," said Hongyuan Securities analyst Liu Youcheng.
