A decline in construction activity in China has pressured independent refiners to start curbing diesel production.
Diesel is the primary output of the so-called teapots and times were good while the real estate market was booming. But the boom now seems to be over, forcing the industry into a gear change.
Bloomberg reported earlier today that operating rates at the independent refineries in Shandong have dropped to the lowest in two years and that run rates are the lowest in nine years.
“Downstream demand for diesel, from mining to infrastructure, is seriously lagging expectations,” a Mysteel OilChem analyst said, as quoted by Bloomberg. Zhang Xiao added that the logistics sector has been the exception, noting that even there, LNG was replacing diesel as a heavy vehicle fuel.
Many private refiners in China started this year struggling, squeezed between higher prices for importing sanctioned oil and depressed refining margins amid sinking domestic diesel prices in the face of a faltering Chinese economy.
The aggregate margin across various fuels of the private refiners has slumped by 50% over the past year. The margin last week fell to its lowest level since early November 2023, per data from Mysteel OilChem cited by Bloomberg in February.
This followed a stellar year for the industry in 2023, with record imports of crude oil and also record domestic production. Crude oil imports jumped by 11% year-on-year to 11.28 million barrels per day in 2023, according to data from the General Administration of Customs.
Oil production at home reached 208 million tons in total, or 3 million tons more than in 2022. The daily average came in at around 4.2 million barrels. Daily processing rates at refineries hit an all-time high of 14.7 million barrels. Independent refiners represent about a quarter of the country’s total refining capacity.
By Irina Slav for Oilprice.com
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