Photographer: Kevin Lee/Bloomberg

China's Oil Output Unlikely to Rebound Until Prices Top $60

Updated on
  • Production drop may halt at $50, Bernstein’s Beveridge says
  • Outut down almost 6% this year, hit 6-year low in August

Oil may need to rally further before China’s producers make enough money to reverse a drop in output to the lowest in more than six years.

Production by the world’s biggest consumer after the U.S. will stabilize with prices around $50 a barrel and may not rebound until they are above $60, according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. China, the world’s fifth-largest producer in 2015, pumped 5.7 percent less crude in the first eight months of the year as state-run companies shut fields too expensive to operate amid the worst price crash in a generation.

“As oil prices recover, we’ll see production start to stabilize,” Beveridge said in an interview. “With breakeven costs around $50 a barrel for some of the mature onshore fields, to get growth back again you’ll need to get above $60 a barrel.”

Oil has gained more than 10 percent since the Organization of Petroleum Exporting Countries agreed Sept. 28 to cut production for the first time in eight years. Brent crude, the global benchmark, fell 0.7 percent to $51.55 a barrel as of 12:07 p.m. in Hong Kong on Monday. Prices are up about 85 percent from a 12-year low in January.

China is forecast to lead output declines across Asia, helping tighten the global market as the world’s largest-consuming region relies more on overseas supplies. The country’s production during August dropped 9.9 percent from a year ago to 16.45 million tons, according to the National Bureau of Statistics. That’s about 3.89 million barrels a day, the lowest since December 2009, according to Bloomberg calculations.

The publicly listed units of the country’s biggest onshore producers, PetroChina Co. and China Chemical & Petroleum Corp., known as Sinopec, both expect their domestic output to drop by about 6 percent this year.

“China would need $60 to see onshore production really start to grow as production costs are high because of the maturity of the resources,” Beveridge said.