China's Q1 crude runs slide amid price surge, lockdowns

China's crude throughput slipped 1.5% year on year to 13.96 million b/d in the first quarter due to the dual blow of war-led lofty global oil prices as well as lockdowns imposed as a result of fresh outbreaks of COVID-19, a trend that may spill over into the following quarter in Asia's leading oil consumer.

A slower-than-targeted economic growth rate in the same period also contributed to the bearish sentiment on the country's overall oil sector.

Analysts attributed the throughput reduction in Q1 to a 2% year-on-year fall in runs March due to rising commodity prices and weakening domestic demand as COVID-19 re-emerged, capping a quarter that also witnessed run cuts earlier do to the Lunar New Year and the Olympics.

In absolute terms, crude throughput was at 58.59 million mt in March while volumes for Q1 were at 171.44 million mt, National Bureau of Statistics data released April 18 showed.

China's Q1 GDP growth was at 4.8% year on year, which was below the annual target of 5.5% set on March 5, NBS data showed.

China's economic outlook has been challenging since the beginning of the year, as the effects of Beijing crackdown on property and other high-growth industries took a toll on growth in the world's second-largest economy.

Meanwhile, Beijing's zero-tolerance approach toward the pandemic pulled down economic activity and mobility in Jilin province, an important agricultural producer and an automotive base, in the manufacturing hub of Shenzhen and Dongduan of Guangdong province, as well as in Shanghai, the financial center and most populous city, which was locked down in late March.

S&P Global Commodity Insights expects China's annual GDP growth in 2022 to be around 4.9%, given the headwinds from the property downturn, the Russia-Ukraine conflict, as well as COVID 19-related controls.

Trend reversal unlikely

Tepid economic activities in March led to China's crude throughput falling 1.3% to 13.85 million b/d in the month from the average of 14.04 million b/d in January-February, which also witnessed a 2% decline in runs year on year, NBS data showed.

Independent refineries in Shandong contributed to the reduction in March, as they slashed their throughput of crude, fuel oil and bitumen blend by 13.6% to 1.82 million b/d from February. The integrated private Hengli Petrochemical and Zhejiang Petroleum & Chemical cut daily throughput by 8.2% due to the narrowing margin and weak demand, according to local information provider JLC.

State-owned refineries, on the other hand, lowered their utilization rate to 81% in March from 82.7% in February due to scheduled maintenance, S&P Global's data showed.

The downward trend is likely to extend into April amid subdued demand as Shanghai remains locked, while another first-tier city Guangzhou witnessed tight pandemic-related controls.

As Q2 starts, independent refineries in Shandong have cut their average utilization rate to below 49% as of April, from about 57% in March, according to local information provider JLC. State-run refineries have also cut their April throughput by 30,000-100,000 mt this month from their initial plans, S&P Global data showed.

Platts Analytics expects throughput in April to fall 2.3% month on month, and Q2 volume to decline 1.4% from January-March.

NBS releases data in metric tons, which S&P Global Commodity Insights converts to barrels using a 7.33 conversion factor.

Bright upstream outlook

In the upstream sector, the country's crude output rose 3.9% year on year to 4.19 million b/d in March, a six-year high. The previous high was 4.3 million b/d recorded in December 2015, NBS data showed.

Production averaged 4.17 million b/d in January-March, a 4.4% rise year on year, due mostly to the efforts of leading state-owned oil producers.

China's three oil giants decided to increase efforts to boost domestic crude production amid high crude prices.

While PetroChina will rely on its Changqing, Tarim, Xinjiang and Southwest fields to sustain its production growth of 1.3% seen in 2021, the offshore Bohai field will continue to be CNOOC's flagship output source. CNOOC targets to lift its oil and gas output by 5.6% year on year to 1.64 million-1.67 million b/d of oil equivalent.

Sinopec also plans to boost its crude production, by 0.5% year on year to 770,000 b/d in 2022.

This trend has boosted expectations for China to inch closer to its target to produce 200 million mt, or 4.02 million b/d, of crude in 2022.

China's crude output, throughput (million mt)

Source: National Bureau of Statistics