China Likely to Stop Diesel Imports for Second Month

We managed to miss this story on China’s diesel imports sent to us by reader Michael.

When oil prices rose so rapidly early in the year, many pointed to robust growth in demand from China, and expected that level of growth to continue. Skeptics like your contrarian blogger pointed out other factors could be at work: pre-Olympics stockpiling (of which there were widespread reports) and additional hoarding due to the expectation that fuel subsidies would be cut after the Olympics (to the surprise of many, they were reduced in the preceding month).

Whatever the causes, it looks like China is sitting on a whole lotta diesel. From Bloomberg:

China, the world’s second-largest energy user, may halt diesel imports for a second month in November because of rising stockpiles, traders said.

China International United Petroleum & Chemical Corp. and China National United Oil Corp., the nation’s biggest oil traders, won’t buy any diesel cargoes this month, said two officials…

Fuel inventories have risen as oil-product consumption fell after the world’s fourth-largest economy grew at the slowest pace since 2003 in the third quarter. China increased imports of diesel, used to fuel trucks and power generators, to a record 970,000 metric tons in July to ensure supplies during the August Olympics Games.

“Domestic consumption has waned even as we approach the peak winter demand season,” Yao Daming, the director of the oil department at Guangdong Oil & Gas Association, said by telephone in Guangdong province, the nation’s manufacturing hub. “Stockpiles at privately owned teapot refineries are currently very high.”

Unipec, as China International is known, may not need to import diesel cargoes in the short term, said one of the traders…

The nation’s stockpiles of petrochemicals have risen to records because of the slowing economy, PetroChina Co.’s Chairman Jiang Jiemin said last month…

China Petroleum & Chemical Corp., Asia’s biggest oil refiner, will cut crude-oil processing volume at refineries with “relatively low profitability” because of falling fuel demand, parent China Petrochemical Corp. said earlier this week. Unipec is a unit China Petroleum, known as Sinopec.

And if you think OPEC cuts will do the trick, consider: of the 1.5 million barrel a day cut announced, only a 1.1 MBD cut si being implemented. And this level of compliance is better than normal. From a separate Bloomberg story:

The Organization of Petroleum Exporting Countries will cut output by 1.1 million barrels a day between October and January, 400,000 barrels less than the group pledged at a meeting in October, the Energy Department said.

OPEC, responsible for 40 percent of world oil supply, agreed to reduce production by 1.5 million barrels a day at an Oct. 24 meeting in Vienna. The 70 percent projected compliance rate compares with a 50 percent rate on previous OPEC decisions, the U.S. agency said in its newsletter, This Week in Petroleum.