So much for the thesis that China’s oil imports would rise relentlessly, which by implication said they would be immune to the advanced economy slowdown. Sinopec, the largest refiner in China, is reducing its oil imports. But oil has bounced up and is now trading at over $100 a barrel. So much for the theory that oil prices are a function of supply and demand, and not, say, a store of value. It appears the pending bailout has trumped all other developments.
From Reuters (hat tip reader Michael):
Asia’s biggest refiner, Sinopec Corp, will cut refining runs and slash crude oil imports by up to 10 percent to draw down its hefty stocks, one of the starkest signs yet of weakening oil demand in the world’s No. 2 consumer.
The company will import around 1 million tonnes less than it originally planned each month from September to December, a company official who declined to be named said on Friday. That equates to more than 235,000 barrels per day (bpd), or around 3 percent of China’s implied daily oil consumption.
“There are very high volumes of fuel stocks in the market, so plants can moderately reduce operation rates or conduct maintenance plans as required,” said the official.
China’s thirst for fuel had already visibly dimmed after a record surge in pre-Olympic gasoline and diesel imports, but news that Sinopec would be cutting domestic production in addition to halting its import spree suggested an even sharper slow-down.
“China’s implied oil demand surged fast in the first half, so full-year growth would not fall below around 5 percent even if there is no growth for the rest of the year,” the official added.
Beijing leaned hard on its oil firms to increase inventories ahead of the August Olympic Games, to prevent shortages that could mar an event it hoped would showcase China’s progress….
Now real demand appears to be flagging as the financial crisis weighs on exporters, and local supplies have risen as independent domestic traders who had hoarded fuel over the summer begin releasing stocks as prices fall, the Sinopec official said.
“Sinopec’s decision to cut crude imports may reflect that oil products consumption growth in China could have slowed down after Beijing raised fuel prices in late June,” said Lawrence Lau, analyst at Bank of China International.
Beijing shocked traders with an unexpected 17-18 percent rise in state-set pump prices in late June. Car sales have slumped since then, further eroding consumption already undermined by weakening manufacturing and export growth.
Note that China’s fuel prices are still subsidized despite the recent price increases. The officialdom had come to recognize that this had led domestic manufacturers to be energy-inefficient, which in the long run will reduce their competitiveness. Thus China is believed to be on the path to eliminating subsidies, but how long that will take is anyone’s guess.