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China's Sinopec, Teapot Oil Refiners Slash Feb Output As Virus Hits Demand

The state refiner is cutting throughput by around 600,000 barrels per day (bpd), equivalent to roughly 12% of its average daily throughput of 5 million bpd last year.

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China's Sinopec Corp, Asia's largest refiner, is cutting throughput this month by around 12% in a steepest cut in over a decade, as the rapidly spreading coronavirus hits fuel demand and distribution, four people with knowledge of the matter said on Monday.

The state refiner is cutting throughput by around 600,000 barrels per day (bpd), equivalent to roughly 12% of its average daily throughput of 5 million bpd last year.

Separately, key independent refineries in east China's Shandong province known sometimes as "teapots", which collectively make up a fifth of China's oil imports, have slashed operations by 30-50% to below half of their capacity, a level unseen since at least 2015.

"Because of amplified expectations of demand destructions, Sinopec's run cuts, the biggest since the 2008 financial crisis, are aimed at supporting domestic fuel prices," said Seng Yick Tee, senior director of China-focused consultancy, SIA Energy.

Together with the teapot scalebacks, this could prompt OPEC-led producers to consider extending or deepening production cuts when they convene, said Tee.

Sinopec asked refineries last Friday to cut production and gave plants different reduction targets based on local fuel demand and logistics, the sources told Reuters. They declined to be named as they are not authorized to speak to media.

Sinopec is closely monitoring the changing market situations and stands ready to ensure supplies, the refiner said in an email to Reuters.

"Company is closely monitoring the changing market situations, and will optimise operation rates and product mix based on market demand," the company said, without commenting directly on the throughput cut rates.

The four sources estimated cuts of about 2.5 million tonnes in total, equal to about 600,000 bpd on average, for February.

One plant in eastern Jiangsu province is lowering runs by 10%, while a plant in Tianjin, near Beijing, is cutting throughput by 20%, two people with direct knowledge of the plants' operations said.

A plant manager with a central-China based Sinopec refinery said his plant has since Friday lowered processing rates to 60% of capacity. He said his plant was operating at near full rates before the cut.

"It's likely that cuts may be extended into March," said one of the sources, a refinery executive.

However, plants shall stand to respond quickly to ramp up runs once market situations turn, the executive added.

DEMAND LOSS

As the virus is eating into China's domestic passenger traffic by road, rail and air for weeks as some Chinese regions including Shandong extend the Lunar New Year break by two weeks to Feb. 10, analysts are forecasting wide-apart demand destructions in the world's second-largest fuel user.

"This means that on the high base of recent Chinese absolute levels of consumption for jet, gasoline, and diesel, that the losses in the near-term could be much larger than initially thought," Citibank said in a client note on Monday.

The investment bank pegged February demand loss at 3 million bpd in China and subsequently drag down global demand growth to a negative 130,000 bpd over the first quarter.

Consultancy Wood Mackenzie, however, put China's oil demand reduction at over 250,000 bpd for the first quarter and lowered world oil demand by 500,000 bpd.

"Although the Chinese government has been taking action more swiftly in a more determined manner than in 2003, Chinese domestic and international transport activity is incomparably higher today and thus the impact may be larger," Woodmac said.

(Reuters)


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coronavirus outbreak china economy