Sinopec, China’s biggest oil refiner, has reduced its run rates by 10%, Bloomberg reported today, citing unnamed sources, in response to the supply squeeze resulting from the traffic disruption in the Strait of Hormuz. The size of the cut is equal to about half a million barrels daily. There will also be additional output losses from maintenance operations, the sources said.
The refining major accounts for about a third of China’s total refined petroleum product output, with an average processing rate of 5.2 million barrels daily, the publication noted in its report. Sinopec imports about half of the crude oil it processes from the Middle East, which makes it highly vulnerable to supply shocks in the region.
What’s more, the processing rate cut comes smack in the middle of peak refining season in anticipation of the seasonal demand uptick in fuels during the summer months. The peak in production also comes ahead of refinery maintenance season, which typically comes between April and June.
Last week, Reuters reported Sinopec was planning a processing rate cut, citing sources as saying the size of the cut could be between 600,000 barrels and 700,000 barrels daily. “Sinopec has little option other than cutting runs, and immediately,” one of the sources told the publication, following the immediate suspension of all fuel exports from China earlier in the week.
Asia, the biggest oil demand center globally, is facing the greatest pain from the closure of the strait of Hormuz. Overall, the war could force up to 6 million bpd cuts to crude runs across Asia in April, as refineries face severe supply disruption with 65% dependency on Middle East crude, Wood Mackenzie analysts warned last week. That’s under a worst-case scenario in which existing emergency stockpiles are not used, according to Wood Mac.
By Irina Slav for Oilprice.com