China’s refiners raised crude oil processing runs to near record monthly levels in October

REUTERS

BEIJING (Reuters) – China’s refiners raised crude oil processing runs to near record monthly levels in October as refining margins jumped after the country’s state planner hiked prices for gasoline and diesel at the pump.

Also on the rise last month, according to data released by China’s statistics bureau on Tuesday, was the country’s natural gas production – jumping 15 percent to a seven-month high as oil majors ramped up output to meet growing winter demand spurred by Beijing’s squeeze on the use of coal for heating.

The data showed crude runs rose 7.4 percent in October to 50.51 million tonnes, or 11.89 million barrels per day (bpd) on a daily basis, easing off the record pace of 12 million bpd set in September.

For the first 10 months of the year, refinery output rose 5 percent from the same period a year earlier to 468.92 million tonnes, or 11.26 million bpd.

“Throughput rose strongly as refiners expect margins to firm, with government raising retail fuel prices in tandem with spikes in the global crude oil market,” said Seng-Yick Tee, senior director at Beijing-based SIA Energy.

China’s state planner, the National Development and Reform Commission (NDRC), raised both gasoline and diesel retail prices by 150 yuan ($22.60) per tonne on Nov. 2, the second price hike in two months. The higher prices have boosted margins for both state owned and independent refineries.

The NDRC is set to adjust retail prices again on Nov. 16, with analysts and refiners forecasting another big hike in prices.

Meanwhile natural gas output rose 15 percent in October from the same month a year ago to 12.4 billion cubic meters, the highest since March.

Oil majors are ramping up domestic gas production at key fields like Changqing, and also boosting imports of pipeline gas and liquefied natural gas. Demand for the cleaner fuel is set to grow at the fastest pace since 2011, spurred by Beijing’s gasification drive.

October domestic crude oil production inched down 0.4 percent on year to 16.01 million tonnes, or 3.77 million bpd, hovering close to August’ s record monthly low of 3.75 million bpd.

Reporting by Meng Meng and Aizhu Chen; Editing by Kenneth Maxwell

Oil steadies as Middle East tensions offset concern over China demand

CNBC

  • China’s October crude imports fall to 1-year low
  • But ongoing OPEC-led supply cuts support crude prices
  • Traders concerned about rising Middle East tension

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil steadied on Wednesday as Chinese crude imports fell to a one-year low, but losses were offset by investor caution over rising political tensions in the Middle East.

Traders said they were closely watching escalating tensions in the Middle East, especially between regional rivals Saudi Arabia and Iran.

Brent futures were at $63.80 a barrel at 1005 GMT, up 11 cents, while U.S. West Texas Intermediate (WTI) futureswere down 8 cents at $57.12 a barrel.

Brent crude hit $64.65 earlier this week, its highest since mid-2015, as political tensions in the Middle East escalated after a sweeping anti-corruption purge in top crude exporter Saudi Arabia, which in turn has confronted Iran over the conflict in Yemen.

China’s October oil imports fell to just 7.3 million barrels per day from a near record-high of about 9 million bpd in September, according to data from the General Administration of Customs on Wednesday. That is the lowest level since October 2016, though imports were up 7.8 percent from a year ago.

Li Yan, oil analyst with Zibo Longzhong Information Group, said the lower imports reflected fewer purchases from independent refineries, “as many of them are running out of crude quotas for this year.”

Here's what Dennis Gartman finds ‘fascinating’ about oil’s reaction to the Saudi shakeup

Here’s what Dennis Gartman finds ‘fascinating’ about oil’s reaction to the Saudi shakeup  

For next year, however, independent refiners are likely to boost their imports again as authorities on Wednesday raised the 2018 crude oil import quota by 55 percent over 2017 to 2.85 million bpd.

The oil price has gained around 14 percent in the last month alone, propelled largely by evidence that OPEC’s efforts, together with those of its partners to curtail output, is helping erode a global overhang of unused crude.

“Stronger oil fundamentals and investor inflows have been the catalyst for higher oil prices, but adding further support now is a focus on several geopolitical risks that have been looming over oil markets for a while,” said analysts at Citi.

The Organization of the Petroleum Exporting Countries‘ 2017 World Oil Outlook showed the group predicts demand for its crude will rise more slowly than previously expected in the next two years, as higher prices from its supply policy stimulate output growth from rival producers.

“The call on OPEC in 2019 envisaged by OPEC was reduced by 600,000 to a good 33 million bpd, and is expected to remain at roughly this level until 2025,” Commerzbank said in a note.

“Currently, OPEC is only producing somewhat less than this amount. This leaves OPEC virtually no scope to expand production in the next eight years.”

Are Crude Oil Bulls Controlling the Bears?

PART 1 OF 5

Is Saudi Arabia Supporting the Crude Oil Bulls?

Crude oil futures  

December US crude oil (DWT) (SCO) futures contracts rose 1.1% to $52.47 per barrel on October 24, 2017. It’s the highest settlement since April 17, 2017. Brent oil (BNO) futures contracts rose 1.7% to $58.33 per barrel on October 24, 2017—near a four-week high.

On October 24, 2017, Saudi Arabia said that it would help reduce the global crude oil glut by extending the ongoing production cut deal, which supported oil (BNO) (USL) prices. Oil prices also rose due to the supply outages in Iraq following the Kurdish independence referendum. The expectation of a fall in US gasoline inventories also supported oil prices.

Saudi Arabia 

On October 24, 2017, Saudi Arabia’s energy minister said that the country focused on reducing OECD crude oil inventories below the five-year average. He also said that after the expiry of the ongoing production cut deal, OPEC might consider prolonged output caps, which is bullish for oil (BNO) (UCO) (DBO) prices. It benefits oil producers (XOP) (XLE) like Shell (RDS.A) and ExxonMobil (XOM).

API’s US crude oil inventory estimates

The API (American Petroleum Institute) released its crude oil inventory report on October 24, 2017. It estimates that US crude oil inventories rose by 519,000 barrels on October 13–20, 2017. A Reuters survey predicted that US crude oil inventories would have fallen by 2,600,000 barrels during the same period. US oil prices fell in post-settlement trade on October 24, 2017, due to the surprise build in US crude oil inventories.

The U.S. Energy Information Administration will release its weekly crude oil inventory report at 10:30 AM EST on October 25, 2017.

Wall Street 

The NASDAQ (QQQ) and S&P 500 (SPY) rose on October 24, 2017. They closed at record levels on October 20, 2017. The Dow Jones Industrial Average Index (DIA) closed at a new record on October 24, 2017. The possibility of the US tax reform’s success has been driving Wall Street. The strong 3Q17 earnings results have also been pushing Wall Street higher.

Series overview 

In this series, we’ll discuss the API’s gasoline and distillate inventory data. We’ll also discuss US gasoline demand and China and India’s crude oil imports.

Are Crude Oil Bulls Controlling the Bears? PART 2 OF 5

Gasoline and Distillate Inventories Could Support Oil Futures

Crude oil futures 

December US crude oil (UWT) (DWT) (DBO) futures contracts fell 0.25% to $52.35 per barrel in electronic exchange at 2:00 AM EST on Wednesday, October 25, 2017. Prices fell due to the surprise rise in US crude oil inventories reported by the API (American Petroleum Institute) the previous day. US crude oil prices are at a six-month high. Prices (USO) (UCO) could have also fallen due to profit-booking.

December E-Mini S&P 500 (SPY) futures contracts fell 0.15% to 2,563.5 in electronic exchange at 2:00 AM EST on October 25, 2017.

API’s gasoline and distillate inventories  

The API released its crude oil inventory report on October 24, 2017. It estimates that US gasoline and distillate inventories fell by 5.75 MMbbls (million barrels) and 4.95 MMbbls on October 13–20, 2017.

The market expected that US gasoline and distillate inventories would have fallen by 0.01 MMbbls and 0.86 MMbbls during the same period. Any fall in gasoline and distillate inventories is bullish for gasoline (UGA) and diesel prices. Higher gasoline and diesel prices are bullish for crude oil (USO) (UCO) (SCO) prices. Higher oil prices benefit oil producers (IEZ) (IYE) like Sanchez Energy (SN), Newfield Exploration (NFX), and Energen (EGN).

EIA’s US crude oil inventories  

The EIA (U.S. Energy Information Administration) will release its weekly crude oil inventory report at 10:30 AM EST on October 25, 2017. If the EIA reports a larger-than-expected fall in US crude oil inventories, it would benefit oil (OIL) (DTO) prices. For more on US crude oil inventories, read the previous part in this series.

If the EIA reports a larger-than-expected fall in US gasoline and distillate inventories, it would support gasoline and diesel prices. As a result, it would help crude oil prices.

In the next part, we’ll discuss how gasoline demand impacts crude oil prices.

Are Crude Oil Bulls Controlling the Bears? PART 3 OF 5

Is US Gasoline Demand Impacting Crude Oil Prices?

US gasoline demand 

The EIA (U.S. Energy Information Administration) estimates that the four-week average US gasoline demand fell by 76,000 bpd (barrels per day) to 9,345,000 bpd on October 6–13, 2017. The demand fell 0.8% week-over-week but rose by 262,000 bpd or 2.8% YoY (year-over-year). The YoY rise in the gasoline demand is bullish for gasoline (UGA) and crude oil (OIL) (USO) (DTO) prices.

Volatility in gasoline prices impacts US refining (CRAK) companies like Holly Frontier (HFC), Western Refining (WNR), Marathon Petroleum (MPC), and PBF Energy (PBF).

US gasoline consumption’s peak and low 

US gasoline consumption peaked at 9.8 MMbpd (million barrels per day) in July 2017. Consumption hit a record due to the record number of miles driven by US drivers in the summer. On the other hand, gasoline demand hit 8.0 MMbpd in January 2017—the lowest level since February 2014. The demand has risen 16.8% from the lows in January 2017.

US gasoline consumption estimates 

The EIA estimates that US gasoline consumption will average 9.32 MMbpd in 2017. It’s expected to rise by 0.5 MMbpd to 9.37 MMbpd in 2018. US gasoline consumption could hit an annual record in 2018. Consumption averaged a record 9.32 MMbpd in 2016.

Impact 

Record gasoline demand would likely benefit gasoline prices. Higher gasoline prices could support crude oil (DBO) (OIL) prices. Changes in oil (UCO) (UWT) prices impact energy producers (IXC) (FENY) like SM Energy (SM), ConocoPhillips (COP), and PDC Energy (PDCE).

In the next part, we’ll discuss how China’s crude oil imports impact oil prices.

Are Crude Oil Bulls Controlling the Bears? PART 4 OF 5

China’s Crude Oil Imports Are near a Record Level

China’s crude oil imports

China and the US are the top two crude oil consumers in the world. China’s General Administration of Customs reported that China’s crude oil imports rose by ~1,000,000 bpd (barrels per day) to ~9,000,000 bpd in September 2017—compared to August 2017. Imports rose 12.5% month-over-month and are at a four-month high. They hit record 9, 210,000 bpd in March 2017.

China’s crude oil imports rose due to the rise in imports from China’s teapot refiners. The imports also rose as refiners returned from seasonal maintenance. High crude oil imports from China (FXI) are bullish for crude oil (BNO) (DWT) (UCO) (USO) prices. High oil imports have a positive impact on tanker rates. Higher tanker rates benefit oil tankers like DHT Holdings (DHT) and Nordic American Tankers (NAT).

China’s Crude Oil Imports Are near a Record Level

 China’s crude oil imports in the first nine months

In the first nine months of 2017, the crude oil imports from China are at 8.5 MMbpd (million barrels per day)—12.2% more than the same period in 2016. China’s crude oil imports averaged 7.6 MMbpd in 2016 and 6.7 MMbpd in 2015.

China’s crude oil imports drivers

The imports are estimated to rise in 2017 and 2018 due to the fall in domestic crude oil production, a rise in imports from Chinese teapot refiners, and more strategic petroleum reserve.

Impact 

High Chinese crude oil imports would likely benefit crude oil (BNO) (DBO) prices.

In the next part, we’ll discuss how India’s crude oil imports impact oil prices.

Are Crude Oil Bulls Controlling the Bears? PART 5 OF 5

India’s Crude Oil Imports Hit a Record: Good for Oil Bulls

India’s crude oil imports

India is the second-largest crude oil consumer in Asia after China. It’s the third-largest consumer in the world. The Petroleum Planning and Analysis Cell of India reported that the country’s crude oil imports rose 19% to ~4,830,000 bpd (barrels per day) in September 2017—compared to August 2017. India’s crude oil imports rose 4.2% from the same period in 2016—the highest level ever. The imports rose due to more imports from refineries following the rise in domestic fuel demand. Refiners returned during July and August after the maintenance, which also supported crude oil imports.

High crude oil imports from India are bullish for crude oil (BNO) (DBO) prices. Changes in oil prices impact oil producers (VDE) (IXC) like National Iranian Oil, Denbury Resources (DNR), and Cobalt International Energy (CIE).

India’s crude oil imports

India’s crude oil imports averaged 4.4 MMbpd (million barrels per day) in the first nine months of 2017—1.8% higher than the same period in 2016. Imports averaged 4.0 MMbpd in 2016. They’re expected to rise 7.5% to 4.3 MMbpd in 2017—compared to 2016.

India’s crude oil demand

India’s crude oil demand averaged 4.4 MMbpd in 2016. It’s expected to rise 3% to 4.5 MMbpd in 2017—compared to 2016. OPEC estimates that India’s oil demand could rise 150% to 10.1 MMbpd by 2040 from ~4 MMbpd. Meanwhile, oil majors like Shell (RDS.A), Saudi Aramco, Rosneft, and BP (BP) are trying to tap India’s fuel oil markets.

Impact

High crude oil demand and imports from India could support crude oil (UCO) (USL) prices. Higher oil prices benefit oil tankers like Frontline (FRO) and Nordic American Tankers (NAT).

China crude oil storage splurge is OPEC’s best friend

Nasdaq

Reuters

By Clyde Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

LAUNCESTON, Australia, Oct 16 (Reuters) – China’s crude oil imports surged to the second-highest on record in September, but this isn’t a sign of supercharged demand in the world’s second-biggest economy.

China’s crude imports jumped to 37 million tonnes in September, equivalent to 9 million barrels per day (bpd), according to preliminary customs data released on Oct. 13.

This was up from August’s 8 million bpd, but it’s worth noting that August was an eight-month low. More importantly, China’s oil imports are up 12.2 percent in the first nine months of 2017 from the same period last year.

This certainly looks like solid growth in the world’s biggest crude importer, and indeed, demand for refined fuels had been higher than expected at the start of the year, mainly on the back of strength in infrastructure and construction.

But it also appears that China is buying substantial amounts of crude for its strategic and commercial storages.

The September figure was likely boosted by the start-up of China National Offshore Oil Corp’s new Huizhou refinery, with plants typically requiring around 21 days of commercial reserves to ensure smooth operations.

The return from maintenance of some of the independent refineries also likely boosted crude imports in September.

But it also appears that China’s ongoing build-up of its strategic storage contributed to import demand.

China rarely releases data on its Strategic Petroleum Reserve (SPR), but Thomson Reuters Oil Research and Forecasts estimated that at least 1.15 million tonnes, or about 280,000 bpd, flowed into the SPR in September.

The International Energy Agency said on Oct. 12 that China has been building its crude stockpiles at a record pace in 2017, contributing to the country’s expected demand growth of 540,000 bpd in 2017 from 2016.

The IEA does expect China’s crude oil demand growth to slow to 325,000 bpd in 2018 as the country closes in on filling its available storage tanks.

While China’s buying of crude for its SPR isn’t a new dynamic, in the global oil market it effectively represents a shift of where oil is being stored.

STORED OIL FLOWS TO CHINA

As the global benchmark Brent crude moves into backwardation, where prices for oil for future delivery become cheaper than cargoes for immediate shipping, it becomes unprofitable for producers and traders to store crude.

This has resulted in stored oil being released onto the market, and China has shown it’s a willing buyer.

In particular it appears that crude in floating storage in the Asian region has been moved to China.

While it may seem of limited consequence for oil simply to move from one place to another, it does matter for market dynamics.

Oil in China’s SPR is effectively off the market, insofar as it’s unlikely to be used or be available for sale, unless there is a crisis of some description.

However, oil stored in anchored tankers or in land-based facilities can be traded and shipped. In other words, it is dynamic and part of the global physical oil market.

It’s these inventories that the Organization of the Petroleum Exporting Countries (OPEC) and its allies have been targeting in their efforts to re-balance the global market and boost the price of crude.

The overhang of crude acted as a drag on the price, and as oil moves out of storage it tightens the market, allowing OPEC and other producers to raise prices.

In some ways China’s demand for oil for its SPR has been OPEC’s biggest ally, but it should also be noted that China most likely has boosted oil imports precisely because the price has been relatively cheap.

Whether China would ease purchases for its SPR if crude prices rose strongly remains to be seen, but it certainly would be a possibility.

With Brent remaining below $60 a barrel despite the output curbs by OPEC and its allies, it’s also likely that China will continue to fill its SPR.

This means the country’s crude imports will likely remain robust in coming months, even if they slip back somewhat from September’s elevated levels.

However lower quotas for the export of refined products may also hamper China’s demand for imported crude in the fourth quarter, with refiners getting close to having used up their allocations for the year.

As usual there are competing dynamics at work in China’s crude oil markets, but it is likely that good consumption growth in the domestic market and strong flows into storages will offset any loss of demand from slowing refined product exports.