Crude Oil

Chinese Refining Giant Sinopec to Maintain Steady Output Amidst Recovering Fuel Demand

Published

4 weeks ago

August 28, 2023

Sinopec Corp, the behemoth of the Chinese refining industry, is gearing up to keep its refinery output stable during the latter half of 2023, anticipating a rebound in domestic fuel demand.

This decision comes on the heels of reporting a 20% decline in interim profits due to the dip in crude oil prices.

As the world’s largest refiner in terms of capacity, Sinopec has revealed its plan to process 127 million metric tons of crude oil, equivalent to approximately 5.04 million barrels per day, from July through December. This maintains a course close to the 126.54 million tons processed in the initial half of the year, as disclosed in a stock filing on Sunday.

“The Chinese economy is expected to continue its recovery. Domestic demand for refined fuel is on an upswing, while natural gas demand is poised for sustained growth, and the chemical sector is showing signs of gradual rebound,” stated Sinopec.

This strategy would culminate in an annual throughput of 253.5 million tons for 2023, marking a noteworthy growth of 4.7% compared to 2022, according to Reuters calculations based on company data.

Sinopec reported a 20.1% dip in interim net profit for the first half of the year in comparison to the same period in 2022, amounting to 35.11 billion yuan ($4.82 billion), primarily due to lower crude prices. This is despite the company’s increased refinery output and growth in fuel sales.

Revenues for the first six months experienced a slight 1.1% decline, totaling 1.59 trillion yuan. Nonetheless, a notable 18.5% surge was recorded in total domestic and overseas refined fuel sales, reaching 116.6 million tons.

China’s fuel demand showcased a steady recovery during the second quarter, following a 6.7% year-on-year increase in the first three months. Notably, gasoline and aviation fuel led the resurgence as travel activities rebounded.

Sinopec disclosed that its first-half domestic fuel sales soared by 17.9% compared to the previous year, reaching 92.47 million tons.

On the flip side, the demand for diesel fuel remained under pressure due to challenges faced by the property sector and declining merchandise exports, which consequently impacted trucking.

Chinese refiners, including Sinopec, benefitted from cost-effective crude oil supplies from Iran, Venezuela, and Russia. Western sanctions compelled these producers to sell oil at substantial discounts to ensure continuous revenue generation.

Sinopec, unlike some of its state counterparts, actively incorporated Russian oil supplies, as reported by traders.

During the first half of the year, Sinopec managed to produce 139.68 million barrels of crude oil, reflecting a marginal year-on-year increase of 0.02%. Meanwhile, its natural gas output surged by 7.6% to reach 660.88 billion cubic feet (18.714 billion cubic meters).

The refining margin for the company was 354 yuan ($48.57) per ton during the first half of the year, marking a 33.6% drop from the previous year.

Sinopec is set to allocate a capital spending budget of 104 billion yuan for the second half of the year, a substantial 38.7% increase from the first half. These funds will be channeled into oil and gas projects such as Tahe in Xinjiang, Weirong in Sichuan, and refinery expansion efforts in Zhenhai.

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Crude Oil

Oil Prices Rally Amidst Russian Export Ban and Rate Hike Concerns

Published

18 hours ago

September 22, 2023

Samed Olukoya

Oil prices saw an upward trend on Friday as concerns over Russia’s ban on fuel exports potentially tightening global supply.

This development overshadowed apprehensions of further interest rate hikes in the United States that could impact demand.

However, despite this bounce, oil prices were still on course for their first weekly decline in four weeks.

Brent crude oil gained 46 cents, or 0.5% to $93.76 per barrel while the U.S. West Texas Intermediate crude (WTI) oil surged by 65 cents, a 0.7% rise to $90.28 a barrel.

These gains were driven by growing concerns regarding tight global supply as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) continued to implement production cuts.

Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, commented on the volatile nature of the market, stating, “Trading remained choppy amid a tug-of-war between supply fears that were reinforced by a Russian ban on fuel exports and worries over slower demand due to tighter monetary policies in the United States and Europe.”

He further noted that investors would closely monitor OPEC+ production cuts and the impact of rising interest rates, predicting that WTI would trade within a range of approximately $90 to $95.

Russia’s abrupt ban on gasoline and diesel exports to countries outside a select group of four ex-Soviet states had an immediate effect as it aimed to stabilize the domestic fuel market. This export restriction prompted a nearly 5% increase in heating oil futures on Thursday.

Tina Teng, an analyst at CMC Markets, explained, “Crude oil bounced off a session low after Russia banned diesel exports, which included gasoline. The action reversed a downside movement in crude markets following the hawkish Fed decision.”

However, she also warned that mounting concerns about a recession in the Eurozone could continue to exert downward pressure on oil prices.

The U.S. Federal Reserve recently maintained its interest rates but adopted a more hawkish stance, projecting a quarter-percentage-point increase to 5.50%-5.75% by the year-end. This decision heightened fears that higher rates might dampen economic growth and reduce fuel demand.

Also, the stronger U.S. dollar, reaching its highest level since early March, made oil and other commodities more expensive for buyers using alternative currencies.

Crude Oil

NNPCL’s Crude Commitments Create Hurdles for Dangote’s Oil Operations

Published

3 days ago

September 20, 2023

Investors King

The Nigerian National Petroleum Company Limited (NNPCL) has found itself at the center of a growing challenge faced by the Dangote Petroleum Refinery, one of Africa’s largest industrial projects.

As the refinery gears up for full-scale production, it is grappling with unforeseen hurdles caused by the commitments made by NNPCL in the form of crude oil agreements with other entities.

Dangote Petroleum Refinery, a flagship project of the Dangote Group led by billionaire Aliko Dangote, is on the brink of becoming a game-changer in Nigeria’s energy sector. With a promise to significantly reduce the country’s dependence on imported petroleum products, the refinery holds the potential to bolster the nation’s energy self-sufficiency.

However, recent revelations have shed light on the complexity of the oil industry in Nigeria and how contractual commitments can disrupt even the best-laid plans.

According to Devakumar Edwin, the Executive Director of the Dangote Group, in an interview with S&P Global Commodity Insights, the NNPCL, which normally trades crude oil on behalf of Nigeria, has pledged its crude to other entities.

While Edwin did not disclose the specific recipients of NNPCL’s crude commitments, it was previously announced that the company had entered into a $3 billion crude oil-for-loan deal with the African Export-Import Bank. Under this agreement, NNPCL agreed to allocate future oil production to the bank as repayment for the loan.

This unforeseen twist has left Dangote Petroleum Refinery in a predicament, necessitating the temporary importation of crude oil.

Edwin, however, stated that this importation is only a short-term solution, as the refinery expects to receive crude supply from NNPCL starting in November 2023.

The refinery’s ambitious plans include producing up to 370,000 barrels per day of crude, which will be processed into Automotive Gas Oil (diesel) and jet fuel by October 2023. By November 30, 2023, the plant aims to produce Premium Motor Spirit (petrol), providing a much-needed boost to the domestic fuel market.

While the Dangote Group remains committed to its objectives, the delays caused by NNPCL’s prior commitments have raised concerns among oil marketers.

They believe that the prices of diesel and jet fuel, in particular, will only experience a significant reduction once the refinery begins receiving crude oil supplies from Nigeria rather than importing it.

Despite these temporary setbacks, Edwin reaffirmed the refinery’s readiness to receive crude oil, stating, “Right now, I’m ready to receive crude. We are just waiting for the first vessel. And so, as soon as it comes in, we can start.”

In essence, the shift in the refinery’s original timeline can be attributed to the prior commitments made by NNPCL, causing a momentary delay.

However, it remains a beacon of hope for Nigeria’s energy sector, promising a reliable supply of environmentally-friendly refined products and a substantial influx of foreign exchange into the country.

Devakumar Edwin also underscored that the revenues generated from the refinery’s operations would be reinvested in further developments, reaffirming Aliko Dangote’s unwavering commitment to Nigeria’s economic growth.

As the nation eagerly awaits the commencement of production at the Dangote Petroleum Refinery, it is clear that the complex web of oil industry contracts and commitments has played an unexpected role in shaping the refinery’s journey towards becoming a transformative force in Nigeria’s energy landscape.

Crude Oil

Oil Prices Retreat as Markets Await Fed Meeting

Published

3 days ago

September 20, 2023

Investors King

Oil prices dipped by almost $1 on Wednesday ahead of the U.S. Federal Reserve’s anticipated interest rate decision.

Investors are grappling with uncertainty surrounding peak rates and the potential impact on energy demand.

Despite a substantial drawdown in U.S. oil inventories and sluggish U.S. shale production indicating a possible tight crude supply for the remainder of 2023, prices tumbled.

Brent crude oil, against which Nigerian oil is priced, slid 88 cents, or 0.9%, to $93.46 a barrel following Tuesday’s peak of $95.96, its highest level since November.

U.S. West Texas Intermediate crude oil also fell by 1%, or 97 cents, to $90.23 a barrel after hitting a 10-month high of $93.74 the previous day.

Edward Moya, senior market analyst at OANDA, said, “The oil rally is taking a little break as every trader awaits a pivotal Fed decision that might tilt the scales of whether the U.S. economy has a soft or hard landing.”

He emphasized that the oil market remains “very tight” in the short term.

Investors are closely monitoring central bank interest rate decisions this week, including the Federal Reserve’s announcement, to gauge economic growth and fuel demand. While it’s widely expected that the Fed will maintain interest rates, the focus will be on its projected policy path, which remains uncertain.

U.S. crude oil stockpiles declined significantly, with a 5.25 million-barrel drop last week, exceeding the 2.2 million-barrel decline expected by Reuters analysts.

Goldman Sachs analysts raised their 12-month ahead Brent forecast from $93 a barrel to $100 a barrel, citing lower OPEC supply and higher demand. They believe OPEC can maintain a Brent price range of $80-$105 in 2024.

Russia is considering imposing higher export duties on oil products to address fuel shortages, while U.S. shale oil production is set to reach its lowest point since May 2023. On the demand side, India’s crude oil imports declined for the third consecutive month in August due to maintenance and reduced shipments from Russia.

Exxon Mobil Corp has pledged to increase oil production by nearly 40,000 barrels per day in Nigeria, as part of a new investment initiative in the country, according to a presidential spokesperson.