SHANGHAI (Interfax-China) -- Analysts are warning that the Chinese domestic market could experience an oversupply of fuel in the near future due to significant increases in crude throughput in December, after processing growth in November failed to meet market expectations.
"We predict that crude throughput this month will definitely be significantly higher than November, as both major refiners have pledged to run at full capacity, and the country's many local independent refineries were allocated crude resources at the end of last month," an oil product analyst with the energy information portal oilgas.com.cn, Zhou Fenting, said.
Such independent refineries, otherwise referred to as "teapots", were previously denied access to crude oil and were only able to use fuel oil for feedstock. Teapots account for 10% to 15% of the country's total refining capacity.
China's crude processing growth was slower than expected in November, with the country processing just 3.8% more crude oil during the month than it did a year previously, and around 2% more than in October, according to National Statistics Bureau data released today.
"In a somewhat ironic twist, an oversupply of fuel could arise in the domestic market in the near future," Zhou said. Though fuel output is building now, gasoline and diesel consumption will enter an off-season at the end of this month as cold weather temporarily puts the brakes on the country's agricultural, fishing and construction industries.
"As is typically the case, using administrative orders to solve market-based supply problems is inefficient," Zhou said.
Crude processing growth in November failed to meet industry expectations, despite repeated calls from the central government and repeated promises from the country's major refiners to lift throughput and thereby increase oil product supplies to the domestic market, which has been recently hit by severe shortages.
China's crude throughput stood at 27.67 million tonnes in November, around 60,000 tonnes more than October's 27.61 million tonnes. China Petrochemical Corp. (Sinopec Group) [NYSE:SHI] said previously that it aimed to raise its own crude oil processing volume in November by 800,000 tonnes.
"The NDRC (National Development and Reform Commission) issued its official order [to increase crude processing] in the middle of November, so it may take some time to see the effects," Zhou said.
China produced 10.57 million tonnes of diesel in November, up 6.1% year-on-year, brining total production for the first 11 months of the year to 112.46 million tonnes, up 5.8% on the same period last year.
However, gasoline output last month inched up 4.7% year-on-year to reach 5.05 million tonnes. Total production for the January to November stood at 54.58 million tonnes, up 7.2% year-on-year.
"Government efforts to curb gasoline exports, which are more lucrative for refiners than domestic sales, are also discouraging refiners from increasing gasoline production," Zhou said. "The particularly severe shortage in diesel has also caused them to view diesel production as a priority."
At the same time, kerosene and lubricating oil production soared, up by 27.8% and 24.4% year-on-year during the month to amount to 923,600 tonnes and 579,100 tonnes respectively. Kerosene and lubricating oil prices are both based more on market conditions than other oil products.
Production of liquefied petroleum gas (LPG), a by-product of crude processing, remained at modest 1.64 million tonnes last month, up 3.8% year-on-year. LPG demand in the domestic market is expected to be sluggish in the foreseeable future as China's northern regions put central heating systems into operation in mid-November.
The country bumped up crude oil production last month to 15.31 million tonnes, up 1% year-on-year, while total crude production for the first 11 months hit 171.05 million tonnes, up 1.6% year-on-year.
China's gas output remained robust during November, recording a 16.4% increase on October's production to reach 5.95 billion cubic metres. Total output for the January to November period came to 62.04 billion cubic metres, up 19.7% year-on-year.
© Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262.
