H1, 2019 China Refined Oil Market Review
In the first half of 2019, with the influence of various factors such as policies, supply, demand and inventory, China’s refined oil wholesale prices first increased and then declined.
In the first half of 2019, the international crude oil prices first increased and then dropped. The crude oil output decline in the OPEC member countries significantly decreased the international crude oil supply. Meanwhile, the U.S.-Iran tensions also supported the increase of international crude oil prices. As a consequence, the WTI once reached $66.6/bbl, and the Brent once reached $75.6/bbl. However, with the increase of the U.S. crude oil stocks and the aggravation of Sino-U.S. trading tensions later, the international crude oil prices started slumping. After short but sharp decreases, the international crude oil prices revived due to the easing of Sino-U.S. relation, the aggravation of U.S.-Iran tensions, the assaults on Saudi Arabia’s crude oil tankers, etc.
On the whole, in the first half of 2019, the international crude oil prices increased, but the average price was much lower than that in the first half of 2018. According to SCI’s statistics, in the first half of 2019, the WTI increased by $11.93/bbl, but the average price dropped by 20.39% from last year. The Brent increased by $11.64/bbl, but the average price dropped by 14.52% from last year.
In the first half of 2019, China’s gasoline and diesel prices at state-owned refineries varied significantly. Therein, the prices of gasoline at state-owned refineries fluctuated downward, and the prices dropped dramatically in mid-May and H2 May. In terms of diesel, from January to April 2019, the prices of diesel at state-owned refineries fluctuated upward, and in May and June, the prices of diesel first declined and then increased sharply. According to SCI’s statistics, in the first half of 2019, the average price of gasoline at state-owned refineries was RMB 7,190/mt, down RMB 679/mt or 8.63% from last year. The average price of diesel at state-owned refineries was RMB 6,475/mt, down 1.98% from last year.
From January to April 2019, China’s refined oil prices inched up from lows. The international crude oil prices fluctuated upward. Therefore, except the gasoline and diesel retail ceiling price decrease on April 1 caused by the value-added tax decline, all other gasoline and diesel retail ceiling price adjustments increased the prices. In terms of demand, with the support such as the Spring Festival holiday, many downstream users replenished in advance, and the sales of refined oil revived. However, from the beginning of May, the inventory at downstream users was high level, and the users purchased on a need-to basis. Meanwhile, the international crude oil prices started decreasing, giving limited support to China’s refined oil market. Therefore, the sales of refined oil became sluggish, and the prices decreased. Therein, the prices of gasoline declined to the lowest level in 2019, while the prices of diesel first decreased and then rebounded because the diesel supply in some regions became short.
According to SCI, in the first half of 2019, China’s retail ceiling prices of gasoline and diesel totally experienced eight increases and four decreases. On the whole, the retail ceiling price of gasoline increased by RMB 265/mt, and the retail ceiling price of diesel increased by RMB 275/mt.
In Q1, 2019, China’s National Development and Reform Commission raised the retail ceiling prices of gasoline and diesel on January 15, January 29, February 15, March 1 and March 29 successively, and the retail ceiling prices of gasoline and diesel totally increased by RMB 750/mt and RMB 725/mt respectively. On April 1, due to the decrease of value-added tax on refined oil products, China’s National Development and Reform Commission decreased the retail ceiling prices of gasoline and diesel.
In Q2, 2019, the retail ceiling prices of gasoline and diesel experienced three increases and three decreases. Therein, on June 12, the prices experienced the largest slump in 2019, and the retail ceiling prices of gasoline and diesel dropped by RMB 465/mt and RMB 445/mt respectively. On the whole, in Q2, 2019, China’s policies made many participants adopted bearish attitudes toward China’s refined oil market.
In terms of refined oil supply, though China’s refineries took intensive turnarounds in Q2, 2019, the refined oil supply remained largely ample. In Q2, 2019, many large-scale refineries such as Sinopec Qingdao Refining and Chemical, PetroChina Urumqi Petrochemical, PetroChina Lanzhou Petrochemical, etc. experienced turnarounds, and as a consequence, in mid-June, the average operating rate at state-owned refineries dropped to its lowest point in 2019. According to SCI’s statistics, in the first half of 2019, the average operating rate at state-owned refineries was 78.18%, down 0.46% from last year. The lowest point of the average operating rate was 72.74%, and it was in mid-June.
However, China’s oil refining capacity kept increasing, while the growth speed of China’s demand for refined oil kept slowing down. Therefore, though many refineries shut down their units, the refined oil supply in the first half of 2019 was largely ample. There was only one exception that in H2 June, due to the significant revival of international crude oil prices, many participants started replenishing their inventory, and as a consequence, the diesel supply in some regions became relatively short.
2019 China Refined Oil Output Statistics
According to the statistics released by the National Bureau of Statistics, from January to May 2019, China’s total gasoline output was 59.187 million mt, up 4.0% from last year. The total diesel output was 67.743 million mt, down 7.6% from last year. The total kerosene output was 20.653 million mt, up 6.4% from last year. Due to the sluggish demand for diesel, in the first half of 2019, the average diesel/gasoline output ratio at refineries has decreased to 1.14:1.
In terms of demand, China’s growth speed of demand for gasoline kept slowing down, while the growth speed of diesel demand remained negative.
In the first half of 2019, China’s demand for refined oil was tepid. Due to the transformation of China’s economic structure, the demand for diesel remained sluggish. Meanwhile, the new energy vehicles significantly influenced the traditional vehicles’ market shares, and the growth speed of China’s car ownership kept slowing down. Therefore, the demand for gasoline stayed tepid, and the prices of gasoline in Q2, 2019 dropped sharply.
2019 China Refined Oil Apparent Consumption Volume Statistics
Next, SCI will forecast China’s refined oil market of the second half of 2019.
First, the average operating rate at refineries will keep reviving, and China’s refined oil supply is unlikely to be short.
In the second half of 2019, though PetroChina Dushanzi Petrochemical and PetroChina Changqing Petrochemical will shut down their units, the average operating rate at state-owned refineries will remain higher than that in the first half of 2019. In Q4, there will be few state-owned refineries experiencing turnarounds, and the average operating rate at state-owned refineries is likely to reach a relatively high level. Therefore, the refined oil supply will be largely ample in the second half of 2019, and though China’s demand for refined oil, especially diesel, will increase from the first half of 2019, the refined oil supply is unlikely to be short.
Second, China’s demand for diesel will revive, while the demand for gasoline will remain stable.
In July and August 2019, due to the rainy weather in southern China and the high temperature in northern China, the operating rates at mining, projects, infrastructural constructions, etc. will be relatively low, and China’s demand for diesel is unlikely to revive significantly. However, from September, the agricultural and fishing activities will support the demand for diesel. Meanwhile, the rainy weather in southern China and the hot weather in northern China will come to an end, giving support to China’s diesel market. In terms of gasoline, though in July and August, the rise of utilization rate of cars’ air conditions will support the demand for gasoline, from September, there will be few bullish factors in the gasoline market except the National Day holiday at the beginning of October. Therefore, SCI reckons that in the second half of 2019, China’s demand for gasoline will be largely stable.
Third, the international crude oil prices may keep fluctuating, while China’s refined oil prices are likely to increase.
In terms of international crude oil prices, in Q3, 2019, the extension of crude oil output decrease in the OPEC member countries will support the international crude oil prices, and SCI reckons that the international crude oil prices may fluctuate upward. However, participants should be aware of the risk that the breakdown of Sino-U.S. trading negotiation will lead to the slump of international crude oil prices. In Q4, 2019, the global demand for international crude oil will drop, while the U.S. crude oil stocks are likely to surge. Therefore, the international crude oil prices may fluctuate downward.
In China, the demand for refined oil in Q3, 2019 is likely to increase. Meanwhile, the current gasoline prices are at a relatively low level. Therefore, SCI estimates that the refined oil prices will increase in Q3, 2019. From Q4, 2019, the demand for gasoline will drop, and with the gasoline supply increase at refineries, the prices of gasoline may decrease significantly. In terms of diesel, the diesel market in Q4, 2019 is likely to be moderate, and diesel cross-regional transportation will be more difficult in winter. Therefore, though the diesel prices in Q4, 2019 are likely to decrease, the decrease will be limited.
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