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China’s Refinery Output in First Annual Decline Since At Least 2011

Chen Aizhu wrote . . . . . . . . .

China’s refinery throughput for the six months to June marked the first annual decline for the period since at least 2011, data showed on Friday, as strict COVID-19 restrictions and fuel export curbs dampened production.

For June, output was 54.94 million tonnes, according to data from the National Bureau of Statistics (NBS), bringing January-June processing volumes to 332.22 million tonnes or 13.4 million barrels per day (bpd), down 6% from a year earlier.

The production in June was equivalent to 13.37 million bpd – up 5% from 12.7 million bpd in May, but about 10% below the all-time high of 14.8 million bpd reached in June 2021.

The month-on-month rebound came as some independent refiners began raising production late in May, after steep cuts between February and April, in response to a moderate pick up in demand as some COVID-19 curbs were eased.

The return of Sinopec Corp’s Yangzi and Hainan refineries from overhauls also contributed to the higher processing, though the state major had to close a 320,000 bpd plant in Shanghai due to a fire on June 18.

China’s demand for refined oil products has been falling since March amid strict curbs to contain the spread of COVID, with gasoline and aviation fuel the worst hit.

But analysts expect throughput to pick up in the third quarter as Beijing tweaks its COVID policy and accelerates infrastructure spending to help revive a flagging economy. read more

China has already issued fuel export quotas earlier than expected, which could help refiners boost output. read more

The NBS data showed China’s crude oil production rose 3.6% on the year to 17.19 million tonnes last month, with daily output hitting an all-time high at 4.18 million bpd.

Production in the first six months rose 4% versus a year earlier to 102.88 million tonnes (4.15 million bpd), as national oil firms accelerated developing conventional and unconventional resources on Beijing’s call to boost domestic supply security.

Despite record production, the increase remains marginal as China imports nearly three quarters of its crude oil needs.

Growth in natural gas production, however, slowed to 0.4% in June from a year earlier to 17.3 billion cubic meters, but output year-to-date rose 4.9%.

(tonne = 7.3 barrels for crude oil)


Source : Reuters

Charts: U.S. Strategic Petroleum Reserve Down Below 500 million Barrels

Source : Bloomberg

Infographic: Who’s Still Buying Fossil Fuels From Russia?

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Source : Visual Capitalist

Sorry, But for You, Oil Trades at $250 a Barrel

Javier Blas wrote . . . . . . . . .

The culprit is the refinery margin and the consequences are huge for global inflation.

If you are the owner of an oil refinery, then crude is trading happily just a little above $110 a barrel — expensive, but not extortionate. If you aren’t an oil baron, I have bad news: it’s as if oil is trading somewhere between $150 and $275 a barrel.

The oil market is projecting a false sense of stability when it comes to energy inflation. Instead, the real economy is suffering a much stronger price shock than it appears, because fuel prices are rising much faster than crude, and that matters for monetary policy.

Petroleum Shock

Refined oil products have risen between 30% and nearly 140% since Russia invaded Ukraine in late February, compared to less than 15% for crude.

To understand why, let’s examine the guts of the oil market: the refining industry.

Wall Street closely monitors the price of crude, particularly a grade called West Texas Intermediate traded in New York. It’s a benchmark followed by everyone, from bond investors to central bankers. But only oil refiners buy crude — and therefore, are exposed to its price. The rest of us — the real economy — purchase refined petroleum products like gasoline, diesel and jet-fuel that we can use to run cars, trucks and airplanes. It’s those post-refinery prices that matter to us.

Typically, the price of crude and the price of refined products go up and down in tandem, almost symmetrically. What’s in between is a refining margin. In normal times, WTI is a handy price shorthand for the entirety of the petroleum market. So when, say, U.S. Federal Reserve Chairman Jerome Powell looks at WTI, he gets a neat picture of the whole energy market.

But we aren’t in normal times. Right now, the traditional relationship between crude and refined products is broken. WTI is anchored around $100-$110 a barrel, suggesting that — in barrel terms — gasoline, diesel and jet-fuel prices shouldn’t be much higher, once you add the average refining margin.

In reality, they are a lot more expensive. Take jet-fuel: in New York harbor, a key hub, it’s changing hands at the equivalent to $275 per barrel. Diesel isn’t far away, at about $175 a barrel. And gasoline is at about $155 a barrel. Those are wholesale prices, before you add taxes and marketing margins.

What’s changed? Refining margins have exploded. And that means energy inflation is far stronger than it appears.

Oil refineries are complex machines, capable of processing multiple streams of crude into dozens of different petroleum products. For simplicity’s sake, the industry measures refining margins using a rough calculation called the “3-2-1 crack spread”: for every three barrels of WTI crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillate fuel like diesel and jet-fuel.

Cracking Profits

Oil refiners are enjoying the best ever processing margins, lifting the cost of fuels such as gasoline, diesel and jet-fuel well above that of crude

From 1985 to 2021, the crack spread averaged about $10.50 a barrel. Even between 2004 and 2008, during the so-called golden age of refining, the crack spread never surpassed $30. It rarely spent more than a few weeks above $20. Last week, however, the margin jumped to a record high of nearly $55. Crack margins for diesel and other petroleum products surged much higher.

There are four main reasons behind the explosion in refining margins.

First, demand — particularly for diesel — has rebounded strongly, depleting global inventories. In some markets, like the U.S. East Coast, diesel stocks have fallen to a 30-year low. Despite rising prices and fears of an economic slowdown later this year, oil executive say they see strong consumption for now. “Demand is not that easily destroyed,” Shell Plc Chief Executive Officer Ben van Beurden told investors last week.

Second, the U.S. and its allies have tapped their strategic petroleum reserves to cap the rally in oil prices. That has provided extra crude, which has put a lid on WTI prices, but it hasn’t addressed the tightness in refined products. Only a small fraction of the emergency release is in the form of refined products, and only in Europe.

Third, and perhaps most importantly, refining capacity has declined where it matters for the market now, and the plants that are operating are struggling to process enough crude to satisfy the demand for fuel. Martijn Rats, an oil analyst at Morgan Stanley, estimates that outside China and the Middle East, oil distillation capacity fell by 1.9 million barrels a day from the end of 2019 to today — that’s the largest decline in 30 years.

The downward trend started well before the pandemic hit, as old Western refineries struggled to compete, environmental regulations increased costs and the unfounded fear of peak oil demand amid the energy transition prompted some companies to close plants. The fuel-demand collapse triggered by Covid-19 only turbo-charged the trend, resulting in dozens of refinery operations shutting down for good in Europe and the U.S. in 2020 and 2021. New capacity has emerged in China. However, Beijing tightly controls how much fuel its refiners can export so that capacity is effectively out of reach of the global market.

“Has the oil market hit the refinery wall?,” Rats asked in a note to clients last week. “Unusually, the answer appears to be yes.”

Fourth, are the sanctions and unilateral embargos — also known as self-sanctions — on Russian oil. Before the invasion of Ukraine, Russia was a major exporter not just of crude, but also of diesel and semi-processed oil that Western refiners turned into fuel. Europe, in particular, relied on Russian refineries for a significant chunk of its diesel imports. The flow has now dried.

Europe not only needs to find extra crude to produce the diesel and other fuels it’s not buying from Russia, but, crucially, it needs the refining capacity to do so, too. It’s a double blow. Oil traders estimate that Russia has shut down 1.3 million to 1.5 million barrels a day of refining capacity as result of the self-sanctions.

Who’s benefiting? The pure-play oil refiners, which are quietly enjoying record-high profit margins. While OPEC and Big Oil get the blame, independent refiners are cashing-in. The sky-high crack margins explains why the share prices of U.S. refining giants Marathon Petroleum Corp. and Valero Energy Corp. have surged to all-time highs. The longer the refiners make super-profits, the harder the energy shock will hit the economy. The only solution is to lower demand. For that, however, a recession will be necessary.


Source : Bloomberg

Charts of the Day: Oil Supercycle and Its Driver

Source : J.P. Morgan and Trading Economics

What to Do with the Gasoline If all Vehicles are Electric?

Charles Hugh Smith wrote . . . . . . . . .

Back in the early days of the oil industry (1880s and 1890s), the product that the industry could sell at a profit was kerosene for lighting and heating. Since there was no automobile industry yet, gasoline was a waste product that was dumped into streams.

Those demanding an all-electric auto-truck fleet as a “green” alternative will re-create the dilemma of what to do with the “waste” gasoline. The world will still want fuel for all those container ships bringing all the goodies of a consumerist society, all those cruise ships visiting ports of call, jet fuel for all those exotic vacations enabled by 550 mile-per-hour aircraft, and oil-based lubricants, plastics and petro-chemicals, and so oil will still be pumped and refined, and almost half of it will be gasoline.

We can either use it or throw it away but we can’t magically turn a barrel of oil into only one product.

[ . . . . . . . . ]

Read more . . . . .


Israeli Pipeline Company Signs Deal to Bring UAE Oil to Europe

Ari Rabinovitch and Tova Cohen wrote . . . . . . . . .

Israeli pipeline company EAPC said on Tuesday it had signed a preliminary deal to help transport oil from the United Arab Emirates to Europe via a pipeline that connects the Red Sea city of Eilat and the Mediterranean port of Ashkelon.

If finalised, the deal will be one of the most significant partnerships to emerge so far since Israel and the United Arab Emirates normalised relations.

State-owned EAPC said it signed a binding memorandum of understanding with MED-RED Land Bridge, a company with Israeli and Emirati owners, in Abu Dhabi on Monday during a ceremony with visiting U.S. Treasury Secretary Steve Mnuchin.

Along with UAE oil, the partners hope to use their “land bridge”, which saves time, fuel and costs versus crossing the Suez Canal, to transport oil back and forth between other countries. It could provide quicker access for consumers in Asia to oil produced in the Mediterranean and Black Sea regions.

“MED-RED is in advanced negotiations with major players in the West and in the East for long-term service agreements,” EAPC said.

It did not disclose financial details, but said the arrangement “is likely to increase the transferred quantities by tens of millions of tons per year.”

The UAE exports the vast majority of its crude oil to Asia.

A source familiar with the deal said that, if finalised, it could be worth $700-$800 million over several years and that supplies could start at the beginning of 2021.

EAPC, or Europe Asia Pipeline Co, operates its eponymous pipeline and deals in oil storage and the export and import of distillates.

MED-RED is owned by Petromal, a unit of Abu Dhabi-based National Holding, Israeli firm AF Entrepreneurship, and Lubber Line, an international group that focuses on infrastructure and energy.

“There is no doubt that this agreement is of high importance to the Israeli market, both economically and strategically, with joint investments extending a decade into the future,” said EAPC Chairman Erez Halfon.

Under the agreement EAPC will manage storing and transmitting the oil.


Source : Reuters

Infographic: How Oil Prices Went Subzero: Explaining the COVID-19 Oil Crash

See large image . . . . . .

Source : Visual Capitalist

China Crude Oil Import

Import Via Qindao Since 2011


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Import vs Oil Price


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Posted on 2016/04/25.


Import and Brent Crude Price in 2008/09 and 2014/15


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Import and MoM change Since 1999

Posted on 2015/01/13.


Monthly Since January 2006


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Posted on 2012/09/11.

WTI Crude Oil

Net Long, Gross Long and Short Positions of Crude Oil and F&O

Posted on 2016/04/23.


US Total Rig Count


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Posted on 2016/03/11.


EIA Short-term Price Forecast 2016

EIA Price Forecast in 2014

Posted on 2016/03/08.


Breakeven Cost of Oil Producing Countries


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Posted on 2016/01/20.


Monthly Chart Since 2005

Posted on 2015/12/31.


U.S. Production, Import and Consumption


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World Conventional and Unconventional Liquids Production


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Posted on 2015/12/28.


A new daily low


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Gold to Oil Ratio


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Posted on 2015/12/14.


Price Since 1995


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US Crude Oil Production and Net Import Since 1910


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Posted on 2015/08/18.


Divergence Between Oil Price and Energy Stock


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Posted on 2015/07/10.


Price Since 1996


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Posted on 2015/05/29.


Total Crude Inventory


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Rig Count and Oil Production


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Posted on 2015/03/18.


Oil Demand Forecast for U.S., Middle East and BRICS


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WTI Price and US Production Since 2009

US Stocks Excluding SPR

Posted on 2015/02/22.


Oil Price and S&P500 Since 2005


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Posted on 2015/02/15.


US Crude Oil Production and WTI Cryde Price Since 2012


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US Crude Oil Production Since 1984


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Posted on 2015/01/14.


Prices of WTI and Brent Since 2005


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Posted on 2015/01/13.


Indexed US oil rig count vs Weeks from Peak


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Posted on 2015/01/12.


Average Cost of Oil Production in Different Regions


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Posted on 2015/01/03.


Demand/Supply until 2Q15

Inflation Adjusted Monthly Price Since 1946 in November 2104 Dollars


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Posted on 2015/01/01.


Historical Crude Oil Price Since 1861


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Posted on 2014/12/20.


Daily Chart

Weekly Chart

Posted on 2013/07/06.


Daily and Weekly Price Charts

U.S. Crude Import by Countries


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Petroleum Production of Saudi Arabia and U.S.

Global Oil Consumption 1965-2011

Global Oil Production 1965-2011

OECD and OECD Cumulative Oil Demand Growth

Posted on 2013/06/07.