Chinese state firms face oil product inventory pressure

Chinese state-controlled firms are cutting crude throughput and running down oil product inventories this month in the wake of the coronavirus outbreak that has cut oil demand. But product inventories remain high and a shortage of storage capacity is putting pressure on brimming stocks.

PetroChina is likely to run 2.58mn b/d of crude this month, down by 770,000 b/d from January. Sinopec has lowered utilisation rates at most of its refineries to 60-75pc from its standard target of 80pc.

Prevention and control measures, in particular for the coronavirus epicentre of Wuhan in Hubei province, picked up pace this week in an effort to contain the outbreak, which originated from the city more than a month ago but has now spread to other provinces and to multiple countries.

More workers have returned to work in the south China manufacturing hub of Guangdong, including to Shenzhen and Guangzhou this week, increasing fuel and non-fuel sales from some 1,100 retail fuel outlets in the region owned by PetroChina, parent firm CNPC said.

Guangdong province extended the 24-30 January lunar new year break to 10 February, while schools were told to reopen on 17 February. PetroChina said it is prepared for the expected increase in demand as activities increase. Stocks at 14 product oil depots, including those rented by PetroChina are almost 70pc full, sufficient for up to 60 days of consumption. This is considered high, as inventories should be half of that this time of the year.

PetroChina's key refineries in the west of the country have cut throughput this month. But product inventories in some parts of west China, which have been rising since January, have ballooned to an average 55.9mn bl as of 12 February, some 2.1mn bl higher than past historical highs. A lack of product storage capacity is putting pressure on high stocks.

PetroChina said it has adopted a different production planning strategy this week in a bid to offset this problem. The company's northwest China sales branch has shortened its product planning system from 30 days to 3-5 days to allow for more proactive adjustment to production plans based on the development of the outbreak. The company said it is also co-ordinating more closely with its sales units to ensure there is no bottleneck in rail transportation of products.

The outbreak has hit demand for all commodities. Products demand during the lunar new year holidays in Hunan province, south of Hubei, was a third that of year-earlier levels, said the energy regulatory office of Hunan's national energy administration in Hunan, although the lunar new year began on 5 February last year. Hunan extended the national holiday until 10 February to prevent the spread of the virus.

Natural gas demand from the province averaged below 10mn m³/d during this period, 9mn m³/d less than its maximum supply volume of 19mn m³/d.

By Karen Teo