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China refined oil market remains bullish in H2 2018

JLC July 12 , 2018 Helen

    Beijing (JLC), July 12, 2018--China refined oil price will continue rise in the second half of 2018, coupled with more output and exports, given the sluggish demand for diesel, which is opposite to gasoline.


    China refined oil price sees growth in H1 2018


    From January to June 2018, domestic gasoline and diesel market as a whole showed an upward trend with more obvious range. Up to now, the average price of 92-Ron gasoline has reached CNY7,558/mt ($1,133/mt), up CNY1,166/mt YoY, up 18.24%, and the average price of zero condensation point diesel is CNY6,309/mt, up CNY688/mt YoY, up 12.24%.


     Entering 2018, as international crude oil continued to fluctuate upwards and once stood at a high of $70/bbl, domestic refined oil retail price ushered in many upward adjustments, especially since March 28, the retail price of refined oil saw 5 consecutive rises, with cumulative rise of CNY910/mt of gasoline and CNY875/mt of diesel under bullish sentiment.


    In addition, the new policy of refined oil consumption tax was released on January 8, causing the operation for changing invoice in all aspects of the market was more strict and the cost of refiner invoicing rose, which incurred the market fears on resources reduction. The market's enthusiasm for speculation was high, and the price of gasoline and diesel rose by more than CNY1,000/mt.


    In the second quarter, as the major refineries entered the regular maintenance period and the independent refineries’ maintenance also increased, the overall domestic refineries’ operational rate fell, coupled with supply reduction. Meanwhile, the downstream industry started to recover operation, and the overall demand gradually improved, so the contradiction between oversupply in the market has eased slightly. Under the support of multiple favorable factors, domestic gasoline and diesel prices have risen significantly.

 

    China refined oil output continues to rise in H2 2018


    In the second half of 2018, amid a reduction of major refineries in maintenance and the commissioning of newly-built units, the overall operational load of domestic refineries will increase, along with a slight increase of the output of refined oil products.


     Sinopec refineries have ended the maintenance plan, and Hohhot Refinery, Huabei Petrochemical, Daqing Petrochemical of PetroChina and CNOOC Huizhou Phase I with a total of capacity of 32 million mt/yr would take maintenance. In addition, some independent refineries have maintenance plans, but the overall number of refineries scheduled to overhaul is less than that in the first half of 2018. Considering that Dalian Hengli Petrochemical's 20 million mt/yr is scheduled to be put into operation in October, Huabei Petrochemical's newly expansion of 5 million mt/yr will also be launched at the end of September for trial. In addition, Shandong's newly-built units with a capacity of 10 million mt/yr would be put into operation, which will supplement the maintenance capacity. In addition, as domestic oil prices increase significantly this year, refinery refining profits are improved, coupled with increasing processing enthusiasm and higher operational rate. In 2018, domestic refined oil production continues to increase, with gasoline rising around 5% and diesel rising at around 1%.

 

    China refineries rush to export oil amid sluggish demand in H2 2018


    Given a slower recovery rate of domestic economy, and the strengthening policies such as environmental protection and safety inspections, domestic demand for refined oil products will still be frustrated, and market supply pressure will be difficult to alleviate.


    In the second half of this year, supported by the traditional peak season of September and October, the demand for diesel will increase, but currently the development of domestic industry and related industries is sluggish. Under the high pressure of national safety production and environmental protection policies, the downstream industries are limited in operation, especially in the northern regions, where during the winter heating season the regulation is more strict, and the operating rates of large outdoor projects, industrial and mining enterprises, logistics and transportation industries will be reduced, causing the rigid demand for diesel is frustrated. It is expected that the demand for diesel in 2018 will once again turn into negative growth, or at minus 2%. In terms of gasoline, during the peak season in summer and National Day holiday, the demand for gasoline will rebound gradually. However, in recent years, new energy vehicles have developed rapidly, and the influence on the traditional automobile industry is becoming more and more obvious, along with pressed market shares of gasoline. Therefore, the annual demand growth for gasoline for 2018 is limited, and it is expected to be around 1%. On the whole, the supply of market resources is still relatively ample. Then, the major refineries may further increase their exports to ease the pressure of oversupply of domestic resources. 


    Chinese refined oil price to grow in H2 2018


    International crude oil may continue to rise, and there will be some boost to the forthcoming market. Domestic refined oil prices still have space to rise.


    In the second half of this year, international crude oil is still well supported and prices will remain high, and as domestic retail price adjustment mechanisms are mainly linked to crude oil prices, the trend of gasoline and diesel prices is closely related to it. As crude oil prices gradually rise, domestic refined oil prices will gain a certain upward momentum. In addition, after the implementation of the new policy on refined oil consumption tax, domestic tax and fee supervision will be increasingly strict, and low-cost blending oil resources will be restrained. The market shares of domestic resources comply with national standards will expand, and the cost of taxes and fees will also increase. On the whole, domestic refined oil prices are still likely to rise in the second half of this year.


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