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Plunging global oil prices batter upstream firms but boost refiners

Xinhua News,BEIJING
2020-04-24 16:50

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BEIJING, April 24 (Xinhua) -- The global oil price collapse is battering China's upstream oil companies but acts as a boon to downstream refineries, analysts said.

Partly due to the coronavirus pandemic, international crude prices slumped in the past few months, with the benchmark Brent crude nosediving from about 68 U.S. dollars per barrel in early January to around 25 dollars at present.

The upstream of the oil industry including oil producers and oilfield service firms has been hit hard by the plummeting prices, said Dong Xiucheng, professor with the University of International Business and Economics.

The cost of domestic oil production is higher than importing from abroad. The more oil domestic firms produce, the more losses they may incur, Dong said.

Committed to becoming more energy self-reliant, China is unlikely to slow domestic oil production despite economic losses.

Peng Huagang, an official with the State-owned Assets Supervision and Administration Commission of the State Council, said earlier this week that the plunging oil prices have partly led to steep profit declines in the domestic oil industry in the first quarter.

However, analysts said refiners may benefit from the price dive as they sit in the downstream of the industry chain and lower crude prices dragged down their production costs.

With higher profit prospects, an increasing number of small and medium-sized refineries resumed work. Some refineries in east China's Shandong Province have processed oil that was purchased earlier at 20 U.S. dollars per barrel.

Amid the steep global price cuts, state-owned oil companies have to slash costs to keep afloat.

Noting that the company is facing unprecedented pressure, Dai Houliang, chairman of China National Petroleum Corp. said the convergence of two black-swan events -- the novel coronavirus epidemic and global oil price slumps -- has hit both the supply and demand of the oil and natural gas markets, pushing the company to trim spending this year.

China's two other major state-owned oil companies -- Sinopec Group and China National Offshore Oil Corporation -- also are believed to be considering cuts in investment.


As one of the world's biggest energy consumers, China has been building up stockpiles of crude oil, with imports rising 5 percent to 130 million tonnes during the first quarter.

However, China's oil storages in some areas have been filled to near capacity, as the coronavirus epidemic disrupted business activities and kept more citizens indoors.

There are nearly 6,000 oil and gas companies in the free trade zone of east China's Zhejiang Province, boasting 31 million cubic meters of storage capacity.

Currently, no more space is left for refined oil products, and most crude storage facilities have been booked, according to the state broadcaster CCTV.

Average rental prices of storage tanks have risen about 10 percent since the Lunar New Year, it reported.

China's domestic oil output rose 2.4 percent year on year to 48.57 million tonnes from January to March, while sales of refined oil products went down more than 20 percent from a year earlier, official data showed.
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