OPEC pro­duc­tion cut may af­fect China sup­ply

China Daily (USA) - - ACROSS AMERICAS - By PAUL WELITZKIN in New York paulwelitzkin@chi­nadai­lyusa. com

The sur­prise de­ci­sion by ma­jor oil-pro­duc­ing na­tions to mod­estly trim out­put may spark China to stock­pile more oil and could tighten sup­plies glob­ally this win­ter, in­dus­try an­a­lysts said.

Last week, mem­bers of the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries (OPEC) agreed on a pre­lim­i­nary deal to cut pro­duc­tion for the first time in eight years. OPEC will de­cide at the group’s next for­mal meet­ing on Nov 30 in Vi­enna the de­tails of cut­ting pro­duc­tion by up to 700,000 bar­rels a day, from a cur­rent level of just more than 33 mil­lion bar­rels a day.

Zhuwei Wang, a se­nior oil an­a­lyst with Platts China Oil An­a­lyt­ics in Bei­jing, said in an email the OPEC move “is likely to ramp up China’s crude im­ports in the next three or six months”.

Wang said the Zhoushan Strate­gic Petroleum Re­serve (SPR) phase-two project with a ca­pac­ity of 18.9 mil­lion bar­rels a day is about to be com­mis­sioned in the fourth quar­ter. That “will trig­ger crude in­flow de­mand given the rule of thumb that Bei­jing’s de­ter­mi­na­tion to im­prove na­tional en­ergy se­cu­rity, es­pe­cially SPRs, of­ten over­weighs com­mer­cial prof­itabil­ity un­less dra­matic price volatil­ity oc­curs”.

China’s grow­ing crude stock­piles have started to draw at­ten­tion. The Wash­ing­ton Post re­ported on Sept 29 that Chi­nese oil in­ven­to­ries stood at about 600 mil­lion bar­rels in May, “… sub­stan­tially more than com­monly thought and nearly as much as the US Strate­gic Petroleum Re­serve”.

The Post said China’s grow­ing re­serves could mean that ris­ing de­mand for crude in the main­land may have come from strate­gic hoard­ing and not ris­ing con­sump­tion. That could com­pli­cate OPEC’s move to trim out­put, the news­pa­per ar­ti­cle added.

Wang said an oil price re­cov­ery may also trig­ger China’s do­mes­tic in­vest­ment in crude pro­duc­tion which will in­crease do­mes­tic out­put in the next 10 to 12 months.

Gor­don Kwan, an an­a­lyst at No­mura, said in a re­search note that OPEC’S sur­prise an­nounce­ment will ben­e­fit CNOOC (China Na­tional Off­shore Oil Corp) the most, fol­lowed by PetroChina Co Ltd and Sinopec (China Petroleum and Chem­i­cal Cor­po­ra­tion).

He also said that the OPEC de­ci­sion may af­fect the global crude mar­ket this win­ter.

“The OPEC deal will re­move the cur­rent over­pro­duc­tion es­ti­mate of one mil­lion bar­rels a day from the global oil mar­kets, per­haps even swing­ing the mar­ket into a deficit dur­ing the colder win­ter months. If im­ple­mented and en­forced, the OPEC deal will force the world to drain down in­ven­to­ries to bal­ance the mar­ket,” Kwan said.

An­thony Starkey of Platts An­a­lyt­ics said, “If OPEC is truly able to limit pro­duc­tion to 32.5 mil­lion bar­rels a day, that re­vises our price fore­cast for 2017 up­ward by $5 to $10 a bar­rel. This higher price en­vi­ron­ment raises, to an ex­tent, ex­pec­ta­tions for sup­ply from non-OPEC pro­duc­ing coun­tries over the medium term.”

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