China Refined Oil: Movements During Spring Festival Holiday

China Refined Oil: Movements During Spring Festival Holiday

In terms of international crude oil market, from January 21 to 31, the WTI price dropped by $6.78/bbl to $51.56/bbl, and the Brent price dropped by $6.43/bbl to $58.16/bbl. The continuous decrease in international crude oil prices suppressed the refined oil prices in China.

As for the refined oil supply in China, according to SCI, most Shandong independent refineries held bearish attitudes toward the future gasoline and diesel markets, and due to the influence of the Spring Festival holiday, the dealings in the market were tepid, resulting in an increase in inventory at refineries. As a consequence, some independent refineries in Dongying, Zibo, Binzhou and Weifang reduced their operating rates by around 30%, and some even shut down part of their units to ease inventory pressure. As for state-owned refineries, the operating rates at some of them stayed stable, and only a small number of state-owned refineries decreased their operating rates slightly. In the future, some state-owned refineries may promote their refined oil exports to relieve inventory pressure.

In terms of the refined oil demand, during the Spring Festival holiday, the use of cars for travelling reduced significantly, and the demand for gasoline was extremely sluggish. Meanwhile, the operating rates at projects, infrastructural constructions, etc. stayed at very low levels, and the logistics industry underperformed because of the 2019-nCoV issue. Therefore, the demand for diesel was weak. Moreover, civilians’ travelling by air decreased dramatically as well, and the demand for jet fuel dropped accordingly.

As for the prices of refined oil, from January 26 to February 1, due to the decrease in international crude oil prices, the prices of gasoline at Shandong independent refineries dropped by RMB 200-550/mt, and the prices of diesel at Shandong independent refineries dropped by RMB 100-400/mt. Influenced by the restriction of logistics and poor demand, the dealings of refined oil at Shandong independent refineries were weak. Currently, the dealing prices of 92Ron gasoline at Shandong independent refineries are around RMB 6,000-6,400/mt, and the dealing prices of -10# diesel are around RMB 5,500-5,900/mt.

In the future, the international crude oil prices are likely to gradually revive. However, if the 2019-nCoV issue in China worsens further, there is risk that the international crude oil prices may continue to decline. After the Spring Festival holiday, civilians’ use of cars will increase, and the consumption of gasoline will revive to some extent. Meanwhile, the demand for diesel will also increase, as the operating rates at projects, infrastructural constructions, etc. will grow in the future. However, SCI reckons that the future demand for gasoline and diesel will drop significantly from recent years, and the future dealings at Shandong independent refineries may remain sluggish. Therefore, the future prices of gasoline at Shandong independent refineries may drop further because of the inventory pressure. As for diesel, though the demand for diesel will be weak, some refineries may cut their diesel output to reduce inventory pressure. Therefore, the future prices of diesel at Shandong independent refineries may fluctuate within a narrow range for a short period.

As for state-owned refineries, their sales branches have not restarted operation yet. SCI reckons that due to the continuous drop in international crude oil prices, the wholesale prices of refined oil at state-owned refineries are likely to drop by around RMB 200-300/mt.