Economic Recovery Drives The "Partial Price War". Is China Refinery Still Capable Of Grabbing Oil Under Low Oil Prices?

"The load of our equipment has been slightly increased" in April 16th, a northeast refinery official told the twenty-first Century economic report. At the end of 2, the refinery also briefed reporters that the refinery needed to prepare for the "minimum load production" in the next two or three months.

It is worth mentioning that the crude oil processed by the refinery is not all imported, nor is it located in the eastern coastal areas. The increase in processing volume is relatively small, but it still reflects some recent changes in China's refining and chemical industry: processing capacity and operating rate are gradually recovering.

Although this signal is weak, it has been caught by the most sensitive oil sellers in the market.

In April 13th, when OPEC made the latest reduction agreement, Saudi Aramco released the latest official export price of crude oil. The official price of light oil sold to Asia in May was set at 7.3 US dollars / barrel more than the Oman / Dubai average price discount, a 4.2 US dollar increase compared with the previous month.

This means that the "crude oil price war" that swept the world has become a partial price war focused on the Asian and European markets. The key points in these two key markets are undoubtedly the gradual recovery of China after the outbreak of the new crown pneumonia.

According to Wood mckenzi, this year will be the largest month since the outbreak of the new crown pneumonia in April. The main refinery will gradually resume to the state of January this year. Local refineries may recover relatively slowly, but the other side will accelerate the integration and industrial upgrading, and further eliminate backward production capacity.

Chinese buyer cost down

In an interview with reporters, many refineries expressed satisfaction with the current price of crude oil. An oil central enterprise source told reporters that China's refining and chemical industry has gradually stepped out of the haze of domestic epidemic.

In January of this year, the new crown pneumonia epidemic swept across the country. All refineries in China reduced the production load. Some of the main refineries even made preparations for the "minimum load operation" in the future. The local refinery's operating rate generally dropped below 60%.

? ? Then, with the gradual easing of the epidemic situation, the isolation and isolation measures in various regions were relatively weakened. In March 6th, the OPEC + consultative conference broke down, and Saudi Arabia launched a crude oil price war. The international crude oil price fell by more than 20% in a short time. In order to free up more stock space for the purchase of low price crude oil, China's refining and chemical enterprises, especially the eastern coastal provinces, imported imported refineries. The factory began to increase its utilization rate.

Our reporter learned that compared with February, the daily processing capacity of 6 refinery crude oils belonging to Sinopec increased by 12 thousand barrels to 43 thousand barrels. The entire Sinopec's crude oil processing capacity in March could increase by more than 2 million tons, reducing the stock for the future import of low priced crude oil.

This strategy has obviously gained good results. According to the General Administration of customs, imports of 1.27 million tons of crude oil increased by 5% in the 1-3 months of this year, while in the first two months, China's crude oil processing volume dropped 3.8%.

When the time came into April, the recovery rate of processing volume exceeded that of the past.

S & P global press told reporters that the Sinopec's operating rate in April was 8 percentage points higher than that in March, and more and more refineries will increase their operating rate to the level before the outbreak. As a result, the agency expects that crude oil processing capacity in China will reach 12 million 500 thousand tons in April, 90% of the total before the outbreak.

On the local refinery side, our reporter interviewed many times that in the 3 and April of the remission of the disease, the recovery rate was the fastest. At present, the average operating rate of the main facilities has been restored to over 60%. According to this recovery rate, the rate of operation will return to nearly 70% at the end of this month, which is not much different from that before the epidemic.

"This April will be the largest month since the outbreak of the new crown pneumonia outbreak, and the main refinery will gradually resume to the state of January this year." Wood, McKenzie Asia Pacific refining analyst Sun Lei told reporters, "we think that the average daily crude oil processing in China this year is about 8 million 900 thousand barrels per day, compared with 9 million 400 thousand barrels per day last year."

Even the refineries located in the northeast of China mentioned above have increased the load of equipment in recent years, and some devices are even close to full load. Although the consumption of refined oil has not been completely recovered due to the outbreak of the disease, there are still a lot of chemical products that are profitable.

Compared with the major economies in the world, the recovery of Chinese refineries has shown a unique trend: the daily processing capacity of European refineries has been reduced by more than 2 million barrels, and the average processing capacity of the US refineries has only been maintained at around 70%. "Only the refineries of China now maintain a relatively good gross profit." The central enterprises told reporters.

He also cited a figure to reporters. This year, international crude oil prices fell more than 70%, compared with the wholesale price of diesel in the Chinese market, which is less than 20%. "China's refineries will be very comfortable in the coming period under the current Contango structure with long-term oil prices larger than spot prices." He said.

Cheap benefits eaten

The fastest recovery of China's refineries has naturally attracted the attention of the world's oil producers.

A source told reporters that the discount offered by the Saudi side is not the lowest spot price that China can buy in the market. "There are about 20 million barrels in West Africa, and the shipment of crude oil has not been sold in April." He said, "many areas of crude oil can not find buyers, China can buy crude oil at a lower price."

According to public information, Russia's crude oil price is 8 dollars per barrel compared to the spot price of Dubai crude oil; Australian crude oil has a discount of 13-14 dollars compared with Brent futures price; the domestic crude oil spot price has refreshed the lowest level in more than 10 years, and the price of the barrel is in the figure of one digit dollar.

News shows that China has begun to look for these ultra low priced crude oil in urgent need of buyers in the market, but the reasons behind these phenomena require enterprises to be vigilant.

According to Wood Mackenzie analysis, this year is the end of the two phase of the national strategic repository. The three phase has not yet been formally put into operation. It is estimated that there will be no significant increase in reserves in the whole year. The utilization rate of China's energy storage facilities jumped from 72% at the end of last year to 83% this year in 1 and February, and is expected to remain above 90% throughout the year.

"In February alone, there was an average of 3 million 500 thousand barrels of crude oil entering the reserve on a single month, most of which were forced to be collected due to the unplanned decline in crude oil processing. The crude oil injected daily dropped to about 300 thousand barrels per day in March." Sun Lei said, "the total reserve is expected to be 1 billion 150 million barrels this year."

This means that China needs to adjust reserves to buy enough oil in the low oil price cycle and reduce the cost of production materials in the whole industry, which will be a challenge for China's crude oil reserve management department.

Another risk faced by Chinese enterprises lies in inadequate market capacity.

Because international crude oil futures prices remain in the Contango structure (spot prices lower than forward futures prices), resulting in profitable oil storage, the VLCC available in the market is basically running, some of which are floating on the sea as oil tanks, leading to soaring freight charges.

"This has been the case since April. The surge in freight rates directly consumed the discount of Middle East crude oil, which led to the fact that Chinese buyers actually did not enjoy more low price benefits." The central enterprises told reporters, "although freight has entered a relatively stable stage in recent years, freight transport will still fluctuate more sharply in the foreseeable future, which will affect the import of crude oil by Chinese enterprises."

WTI crude oil futures hit the lowest value in 18 years, and institutions boldly bet on the spread of contracts in the near and far months.

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