Oil Imports Dropping From Record as China Curbs Refining: Energy Markets

Chinese oil imports may decline from this month’s record high as waning energy demand reduces refining profits.

Monthly imports may decline at least 19 percent to 18 million metric tons in the second half, from a record 22.3 million tons in June, according to Wang Aochao, a former Exxon Mobil Corp. marketing official who heads China energy research at UOB-Kay Hian Ltd. in Shanghai. Refining profits at state- owned China Petroleum & Chemical Corp., or Sinopec, sank almost 90 percent from May to June, a company official said.

Shipments of oil to China, the world’s second-biggest energy consumer after the U.S., are poised to slow as Premier Wen Jiabao damps growth to curb inflation. The economy may expand 10.1 percent this year, according to the median of 27 economists’ forecasts compiled by a Bloomberg. Consumer prices rose 3.1 percent in the year to May.

“Slowing demand from China would put a lot of downward pressure on crude and reinforce concerns among traders,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “It’s going to raise alarm bells.”

Crude futures have dropped 2.7 percent in New York this year partly on concern that Europe’s debt crisis will curb demand for commodities as the world recovers from its deepest recession since World War II. Oil for August delivery rose 2.9 percent to $77.15 a barrel on the New York Mercantile Exchange yesterday.

Sinopec Profit

Sinopec may cut processing volumes by more than 100,000 tons to 17.5 million tons in July, or 4 million barrels a day, according to a company official, who declined to be identified because of internal rules. The Beijing-based company supplies about 60 percent of China’s fuels.

Huang Wensheng, a Sinopec spokesman, wasn’t able to comment on the figures when reached by phone. Mao Zefeng, a spokesman for PetroChina Co., the country’s second-biggest refiner, also declined to comment on processing rates.

Sinopec shares in Hong Kong fell 0.3 percent to close at HK$6.16, while the benchmark Hang Seng Index climbed 0.6 percent.

China’s net imports of crude climbed to a record last month after refiners and state-owned companies took advantage of declining costs to increase stockpiles. Refining volumes rose to an all-time high of 35.8 million tons in May as imports fell to 17.84 million, a four-month low, according to customs data.

“We see refineries’ utilization rate falling from May’s record as economic expansion drops faster than market expectations,” said UOB-Kay Hian’s Wang. “Right now we don’t see any turning point for the oil-processing rate to pick up.”

Vehicle Sales

Passenger-car sales in China rose at the slowest pace in 15 months in June, official data showed. In June, power consumption rose at the slowest pace since February because of weakening demand from heavy industries, government data shows. Demand rose 14 percent from a year earlier to 352 billion-kilowatt hours.

China, which controls fuel costs to curb inflation, cut gasoline and diesel prices by 3 percent on June 1. The government typically reduces oil-product prices when crude drops by more than 4 percent over a 22 working-day period.

The average price of the Dubai, Brent and Cinta benchmark grades monitored by the government declined 3.7 percent in the 22 days to July 12, according to Shanghai-based commodity researcher CBI China Co.

“There is definitely an oversupply of fuel in the wholesale and retail markets,” said Jay Chi, chief analyst at Guangzhou Twinace Petroleum & Chemical Corp. “Inventories are high and so is the pressure to sell.”

--Winnie Zhu, Baizhen Chua. Editors: Ang Bee Lin, Jane Lee.

To contact the Bloomberg News staff on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net; Baizhen Chua in Beijing at bchua14@bloomberg.net

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