Sinopec may cut refinery runs in third quarter as fuel glut weighs
BEIJING (Reuters) — China's top state refiner Sinopec Corp may cut fuel output in the third quarter, said four sources with knowledge of the matter, as the company contends with a domestic fuel glut, competition from independent rivals and slower demand growth.
Sinopec, Asia's largest refiner, may cut throughput by as much as 3 MMt in the third quarter versus the average of the run rates in the first half of this year, said one of the sources.
The reduction, about 238,000 bpd, would equate to about 5% of the state-owned company's average runs in 2016 of 4.71 MMbpd.
"The company (Sinopec) is facing large pressure in the domestic fuel market as local plants boosted production," said the official, who declined to be named due to company policy.
"There were run cuts last year, but the level under consideration for the third quarter is deeper than before."
Sinopec spokesman Lu Dapeng said on Monday that the company does not comment on operational matters.
Sinopec, along with PetroChina, is dealing with rising competition from China's independent refiners, or teapots. Their increasing output has created an overhang of domestic fuel and squeezed margins as fuel demand growth in the world's second-largest economy has slowed.
Sinopec responded to the rising teapot output last year by lowering throughput by 0.4% from 2015, its first annual run cut since at least 2001.
A second source familiar with the discussions said run cuts were under consideration, but declined to specify the size, adding that the plan is still preliminary and could be subject to adjustments when monthly volumes get finalized later.
If implemented, the run cuts would offset some of the expected growth in Chinese crude demand as new refineries are set to start later this year. The lower growth would occur as the Organization of the Petroleum Exporting Countries has just extended output cuts into 2018.
Alternatively, the cuts could bring relief to the saturated Asian gasoline and diesel market.
"Demand is softening currently and export quotas are limiting Sinopec's export capacity," said Michal Meidan of Energy Aspects.
"Around 600,000 bpd to 700,000 bpd of new capacity is set to come on line over the second half (of 2017), so that's why Sinopec is looking to cut back its own runs."
It is unusual for refiners to make run cuts during the July to September period after the peak maintenance season ends and when gasoline demand typically rises with more driving during the summer school holidays.
Since late 2015, China has allowed about 28 independent refineries to import crude oil. The government has approved quotas of close to 1.9 MMbpd, or about one-fifth of the country's imports.
Reporting by Chen Aizhu; Additional reporting by Florence Tan and Jessica Jaganathan in Singapore; Editing by Josephine Mason and Christian Schmollinger
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