When you think about demand for crude oil, where do you think the demand is coming from. If you were conserving energy and not thought about it, the answer is China has been the global oil demand driver for the past 10 years, accounting for 44% of worldwide growth in imports since 2015.
In an article by Florence Tan and Shu Zhang of Reuters, unlike America, China has a number of independent oil refineries and they receive quota every year. China is trying to consolidate the refinery capacity in an effort to reduce emissions.
Shandong refiners, where most of the small independent refiners, known as teapots, are located will reduce imports by around 350,00 b/d and 250,000 b/d in 3rd and 4th quarters according to FGE.
The slowdown in China means oil from Africa, Brazil and Russia is going to Europe and the US.
The shakeup in quota system in China means Sinopec and PetroChina are likely to consolidate their positions as top Chinese crude traders as the independents are sidelined.
Rystad Energy, FGE and Energy Aspects forecast higher refining throughout at 14.5 million b/d to 14.6 million b/d in the 2nd half with imports between 10.85 b/d and 11.5 million b/d.
Linking to dividend paying stocks, it is easier to see in an economy similar to China but government policy often helps the larger players in an industry. It China’s case the desire to reduce emissions means consolidation to the bigger players who have the resources to ensure the best technology is being used to reduce emissions at refineries. With large companies that are profitable, it is easier for the government to make decisions and larger companies who have the resources to carry out government wishes at good margins with the added bonus of reducing competition.
There are more questions than answers, till the next time – to raising questions.