China's apparent oil demand contracted by 1.3% in April 2016 from a year earlier to 11.36 million barrels per day (b/d), according to a just-released analysis of Chinese government data by S&P Global Platts, the leading independent provider of information and benchmark prices for the commodities and energy markets.
Refinery throughput in April averaged 10.93 million b/d, data from the China's National Bureau of Statistics (NBS) showed May 14. This was a 2.3% increase year over year and a 3% rise month over month.
Net imports of key oil products however slumped 48.1% from a year earlier to an average 430,000 b/d in April, driven by sustained exports of transport fuels, according to data from China's General Administration of Customs.
The contraction in oil demand in April represented the third consecutive month of negative growth and was largely attributable to a considerable decline in gasoil and fuel oil demand, amid a slowed Chinese economy.
Over the first four months of 2016, apparent oil demand averaged 11.15 million b/d, down 0.3%. This compared with 8.4% expansion during January-April 2015.
China's oil demand growth is expected to moderate significantly in 2016 as gross domestic product growth slows on the back of economic rebalancing. China's government data shows the economy expanded by 6.7% in the first quarter of this year, a decline from 6.8% in the fourth quarter of 2015.
China's 2016 apparent oil demand is forecast to grow by less than 2%, according to Platts China Oil Analytics, an on-line platform for supply/demand and trade data, of S&P Global Platts.
Gasoil exports hit record high volumes in March and April as refineries grappled with domestic oversupply and muted consumption.
The fuel is used in the industrial and heavy transport sectors. Demand has taken a hit in recent years, given stagnation in the manufacturing sector amid China's transition towards more service-sector-led economic growth.'Despite the fact that refineries have reduced domestic gasoil production by 2% on a year over year basis in 2016, exports have more than quadrupled during the same period, at the same time refiners have reported sluggish domestic sales of gasoil,' said Song Yen Ling, senior analyst with Platts China Oil Analytics.
In April alone, gasoil apparent demand tumbled 8.8% from a year ago, signaling the eighth consecutive month of decline.
Apparent demand for gasoline climbed to a record high of 2.89 million b/d in April, up 7% from a year earlier, according to S&P Global Platts calculations. The growth in the apparent demand figure was due to an 8.8% boost in domestic production, which more than offset a 35.5% rise in exports.
So far this year, gasoline apparent demand in China has increased by 7.9% to an average 2.83 million b/d.
Passenger vehicle sales rose 6.1% from January to April this year, with SUV sales surging 46.3%. New tax incentives introduced late last year to encourage small car ownership likely contributed to higher growth. In contrast, passenger vehicle sales rose just 2.8% in the first four months of 2015.
Platts China Oil Analytics forecasts a gasoline apparent demand rise of 6.4% in 2016, but notes that rising oil prices could limit growth in gasoline consumption this year.
China's fuel oil apparent demand in April shrank by 35.4% on a year-over-year basis to 672,000 b/d. The country's fuel oil consumption has fallen since late 2015, following the government's move to allow more independent refiners to import crude oil. Prior to this, such refiners had limited access to crude oil and therefore tended to import fuel oil as their main processing feedstock. However, since the second half of 2015, Beijing has approved more than 1 million b/d of crude oil import quotas for independent refiners.
With fuel oil not as popular with refiners as processing feedstock, consumption is mainly focused on the bunker market. Fuel oil apparent demand this year has dived 19% year on year to 705,000 b/d.
In contrast, independent refiners' appetite for crude oil has surged significantly in 2016.
China's crude oil imports over the first three months of this year have increased 10.9% to an average 7.49 million b/d, with at least three-quarters of the growth attributed to independent refiners. Consequently, fuel oil imports into China have fallen 40% over January to April to 286,000 b/d.
Month-to-month demand in China is generally viewed to be subjected to short-term anomalies which are of interest and important to note, but often fail to reveal the country's underlying demand trends. Year-to-year comparisons are viewed by the marketplace to be more indicative of the country's energy profile.
*S&P Global Platts calculates China's apparent or implied oil demand on the basis of crude throughput volumes at the domestic refineries and net oil product imports, as reported by the NBS and Chinese customs. Platts also takes into account undeclared revisions in NBS historical data.
The government releases data on imports, exports, domestic crude production and refinery throughput data, but does not give official data on the country's actual oil consumption figure and oil stockpiles. Official statistics on oil storage are released intermittently.
In view of some significant shifts in Chinese consumption and trade patterns in recent years, S&P Global Platts has revised its methodology starting July 2015 to include production and net imports of liquefied petroleum gas (LPG), as well as imports of petroleum bitumen blend, a popular imported feedstock for China's teapot refineries.
S&P Global Platts has also refined its calculation of exports of jet fuel and fuel oil to exclude international marine bunker sales and aviation fuel delivered to international flights. This also impacts net imports, and hence apparent demand calculations.
All historical figures used for comparison have also been calculated using the new methodology to ensure consistency.
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Anthony Rizzo Players Can't Sit On Bench According to a report from the Chicago Sun-Times, the world-famous Anthony Rizzo Phrase "Zombie Rizzo" has been told to never be used again. Of course, this is not the first time that the Zombified Chicago Cubs' first baseman has made headlines this year. A year ago, "Rosebud" was the catchphrase that he coined for himself. Also, there is Anthony Rizzo Shirts that come in his name. Now that the Cubs are World Series Champions, Anthony Rizzo is on his way to superstardom. He is leading the World Series in several categories, including hits, runs, home runs, RBI's, OBP, and SLG. Also, he's on track for a staggering year in hits, RBI's, and total bases, all while being second in home runs.
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It was shaping up to yet another dull OPEC+ meeting. Cut and dry. Copy and paste. Rubber-stamping yet another monthly increase in production quotas by 432,000 b/d. Month after month of resisting pressure from the largest economies in the world to accelerate supply easing had inured markets to expectations of swift action by OPEC and its wider brethren in OPEC+.
And then, just two days before the meeting, chatter began that suggested something big was brewing. Whispers that Russia could be suspended made the rounds, an about-face for a group that has steadfastly avoided reference to the war in Ukraine, calling it a matter of politics not markets. If Russia was indeed removed from the production quotas, that would allow other OPEC+ producers to fill in the gap in volumes constrained internationally due to sanctions.
That didn’t happen. In fact, OPEC+ Joint Technical Committee commented that suspension of Russia’s quota was not discussed at all and not on the table. Instead, the JTC reduced its global oil demand forecast for 2022 by 200,000 b/d, expecting global oil demand to grow by 3.4 mmb/d this year instead with the downside being volatility linked to ‘geopolitical situations and Covid developments.’ Ordinarily, that would be a sign for OPEC+ to hold to its usual supply easing schedule. After all, the group has been claiming that oil markets have ‘been in balance’ for much of the first five months of 2022. Instead, the group surprised traders by announcing an increase in its monthly oil supply hike for July and August, adding 648,000 b/d each month for a 50% rise from the previous baseline.
The increase will be divided proportionally across OPEC+, as has been since the landmark supply deal in spring 2020. Crucially this includes Russia, where the new quota will be a paper one, since Western sanctions means that any additional Russian crude is unlikely to make it to the market. And that too goes for other members that haven’t even met their previous lower quotas, including Iraq, Angola and Nigeria. The oil ministers know this and the market knows this. Which is why the surprise announcement didn’t budge crude prices by very much at all.
In fact, there are only two countries within OPEC+ that have enough spare capacity to be ramped up quickly. The United Arab Emirates, which was responsible for recent turmoil within the group by arguing for higher quotas should be happy. But it will be a measure of backtracking for the only other country in that position, Saudi Arabia. After publicly stating that it had ‘done all it can for the oil market’ and blaming a lack of refining capacity for high fuel prices, the Kingdom’s change of heart seems to be linked to some external pressure. But it could seemingly resist no more. But that spotlight on the UAE and Saudi Arabia will allow both to wrench some market share, as both countries have been long preparing to increase their production. Abu Dhabi recently made three sizable onshore oil discoveries at Bu Hasa, Onshore Block 3 and the Al Dhafra Petroleum Concession, that adds some 650 million barrels to its reserves, which would help lift the ceiling for oil production from 4 to 5 mmb/d by 2030. Meanwhile, Saudi Aramco is expected to contract over 30 offshore rigs in 2022 alone, targeting the Marjan and Zuluf fields to increase production from 12 to 13 mmb/d by 2027.
The UAE wants to ramp up, certainly. But does Saudi Arabia too? As the dominant power of OPEC, what Saudi Arabia wants it usually gets. The signals all along were that the Kingdom wanted to remain prudent. It is not that it cannot, there is about a million barrels per day of extra production capacity that Saudi Arabia can open up immediately but that it does not want to. Bringing those extra volume on means that spare capacity drops down to critical levels, eliminating options if extra crises emerge. One is already starting up again in Libya, where internal political discord for years has led to an on-off, stop-start rhythm in Libyan crude. If Saudi Arabia uses up all its spare capacity, oil prices could jump even higher if new emergencies emerge with no avenue to tackle them. That the Saudis have given in (slightly) must mean that political pressure is heating up. That the announcement was made at the OPEC+ meeting and not a summit between US and Saudi leaders must mean that a façade of independence must be maintained around the crucial decisions to raise supply quotas.
But that increase is not going to be enough, especially with Russia’s absence. Markets largely shrugged off the announcement, keeping Brent crude at US$120/b levels. Consumption is booming, as the world rushes to enjoy its first summer with a high degree of freedom since Covid-19 hit. Which is why global leaders are looking at other ways to tackle high energy prices and mitigate soaring inflation. In Germany, low-priced monthly public transport are intended to wean drivers off cars. In the UK, a windfall tax on energy companies should yield US$6 billion to be used for insulating consumers. And in the US, Joe Biden has been busy.
With the Permian Basin focusing on fiscal prudence instead of wanton drilling, US shale output has not responded to lucrative oil prices that way it used to. American rig counts are only inching up, with some shale basins even losing rigs. So the White House is trying more creative ways. Though the suggestion of an ‘oil consumer cartel’ as an analogue to OPEC by Italian Prime Minister Mario Draghi is likely dead on arrival, the US is looking to unlock supply and tame fuel prices through other ways. Regular releases from the US Strategic Petroleum Reserve has so far done little to bring prices down, but easing sanctions on Venezuelan crude that could be exported to the US and Europe, as well as working with the refining industry to restart recently idled refineries could. Inflation levels above 8% and gasoline prices at all-time highs could lead to a bloody outcome in this year’s midterm elections, and Joe Biden knows that.
But oil (and natural gas) supply/demand dynamics cannot truly start returning to normal as long as the war in Ukraine rages on. And the far-ranging sanctions impacting Russian energy exports will take even longer to be lifted depending on how the war goes. Yes, some Russian crude is making it to the market. China, for example, has been quietly refilling its petroleum reserves with Russian crude (at a discount, of course). India continues to buy from Moscow, as are smaller nations like Sri Lanka where an economic crisis limits options. Selling the crude is one thing, transporting it is another. With most international insurers blacklisting Russian shippers, Russian oil producers can still turn to local insurance and tankers from the once-derided state tanker firm Sovcomflot PJSC to deliver crude to the few customers they still have.
A 50% hike in OPEC’s monthly supply easing targets might seem like a lot. But it isn’t enough. Especially since actual production will fall short of that quota. The entire OPEC system, and the illusion of control it provides has broken down. Russian oil is still trickling out to global buyers but even if it returned in full, there is still not enough refining capacity to absorb those volumes. Doctors speak of long Covid symptoms in patients, and the world energy complex is experiencing long Covid, now with a touch with geopolitical germs as well. It’ll take a long time to recover, so brace yourselves.
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