Lower refining activity in China weighs on oil prices

Reduced crude throughput in May has raised concerns about demand outlook in the world's second largest oil-consuming nation and has capped some of Brent's gains in recent days, according to several analysts.

PHOTO: Crude oil storage spheres tank photographed at night. Getty Images

Chinese refineries processed 60.52 million mt (14.25 million b/d) of crude in May, down 1.8% from the same period a year ago, market intelligence provider JLC reported citing data from China’s National Bureau of Statistics (NBS).

In addition to ramped up refinery maintenance work, abundant domestic crude supply and a gradual shift to electric vehicles contributed to lower crude throughput in China, JLC reported.  

Market analysts argued that this news has exerted pressure on oil prices, with the global oil market becoming more cautious due to indications of weakening demand growth in China.

“[Brent] oil prices were under pressure… after data showed China’s oil refining fell to the lowest level this year,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked. “China’s refiners have been shutting more units than usual as they grapple with weak margins,” he added.

In the first five months of 2024, the country processed about 301.77 million mt of crude (14.49 million b/d), down 0.94% from the same months in 2023, data from the NBS showed.

“The oil market traded under pressure… on the back of weaker-than-expected industrial production data and slower refining activity in China,” two analysts from ING Bank said.

Crude production in China still totaled 18.15 million mt (4.27 million b/d) in May, a modest increase of 0.6% year-on-year, the NBS data showed.

The country’s crude throughput is expected to drop further to its lowest level in June, JLC predicts. State-owned refiners plan to process a total of about 39.10 million mt of crude this month, noting a decline of 2.57% from May, according to sources cited by JLC.

“Chinese refineries are operating at their slowest pace this year as the country grapple with weak margins,” analysts from Saxo Bank said.

By Aparupa Mazumder 

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