The coronavirus outbreak in China has prompted refiners to slash operating rates and sparked a crash in domestic oil futures prices, as markets started to reopen after the lunar new year holidays.
China's largest refiner by capacity state-controlled Sinopec will cut run rates this month in response to lower fuel demand, while its main rival PetroChina is considering similar reductions. The country's independent refining sector is also suffering, as brimming stocks force shutdowns or run cuts.
Sinopec will cut runs by around 10-12pc this month, or around 600,000 b/d, company officials said. Further details are unclear. The company last week pledged to maintain supplies to retail stations in Hubei province, the epicentre of the virus outbreak, but is facing a significant slowdown in fuel demand as China's economy stumbles.
PetroChina, the country's second-largest refiner, is also considering reducing throughput but has yet to make a final decision. But widespread run cuts may be inevitable if government quarantines and restrictions on movement remain in place as the virus spreads.
China's extended lunar new year holidays officially ended yesterday, but many regions have prolonged the break for at least a week, sharply curbing economic growth. The front-month March crude futures on the Shanghai-based exchange INE fell by 8pc today as trading resumed for the first time since 23 January, slightly outstripping a 6.3pc fall in Brent crude futures over 23-31 January.
China's refinery throughput likely fell by at least 840,000 b/d in January, Argus estimates, causing crude to build in port storage tanks and swelling a backlog of vessels waiting at ports.
Smaller, independent refiners in Shandong province may be hardest hit by the slump in demand. The 70,000 b/d Hengyuan, 60,000 b/d Yuhuang, 52,000 b/d Shenchi and 60,000 b/d Kenli refineries have halted production as a shortage of tanker trucks to move fuel from their plants leaves them with excess inventories. Other refiners have cut throughput by 20-80pc or are extending maintenance that began ahead of the holidays, an Argus survey indicates.
Travel volumes during the lunar new year period have collapsed because of the virus outbreak, government figures show. Around 190mn people travelled on public transport — trains, buses, aircraft and ships — during the 10-day holiday period this year, down by 73pc from last year, the transport ministry said. Road travel fell by 73pc, while air travel dropped by 57pc.
The coronavirus had killed at least 361 people and infected over 17,000 in China as of yesterday, according to government figures.
