China’s fuel exports are booming amid battered domestic demand due to the coronavirus outbreak, analysts and trade sources tell Reuters as higher Chinese exports flood the Asian market, which sees depressed demand from the outbreak itself.
In the first quarter of 2020, China’s demand for refined oil products will slump by 35.7 percent year on year, and the market will find itself in a surplus, despite the reduced refinery run rates at Chinese refiners, according to the research arm of the China National Petroleum Corporation (CNPC), cited by Reuters.
Due to weak fuel demand and depressed industrial activity, Chinese refiners—from the biggest refiner in Asia, Sinopec, to the independent refiners in Shandong—have cut refinery runs, while commodity trading houses and oil majors are scrambling to find spot buyers for crude oil outside China.
According to estimates from IHS Markit, the virus outbreak is set to knock out at least 1.7 million barrels per day (bpd) of refinery runs in China in February, compared to an otherwise projected growth of 760,000 bpd.
This would be “the sharpest single-month decline of 1 MMb/d in history,” Xiaonan Feng, Research Analyst at IHS Markit, said earlier this month.
“Refineries will likely need to extend their production cut throughout March in order to work off the excessive product inventory, but the magnitude of the reduction will likely come down to 500,000-600,000 b/d on a yearly basis if demand recovers following the resumption of business activities and easing of government restrictions,” Feng added.
Chinese oil refiners have cut their daily run rates further, to around 10 million bpd last week—the lowest level since 2014, according to industry insiders who spoke to Bloomberg.
The slowdown in China’s industrial activity is causing the worst shock to oil demand in over a decade, Jeff Currie, global head of commodities research at Goldman Sachs, said in an interview on Bloomberg earlier this month.