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

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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 Rise on U.S. Inventory Draws Despite Global Demand Worries

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Oil prices gained on Wednesday following the reduction in U.S. crude and fuel inventories.

However, the market remains cautious due to ongoing concerns about weak global demand.

Brent crude oil, against which Nigerian crude oil is priced, increased by 66 cents, or 0.81% to $81.67 a barrel. Similarly, U.S. West Texas Intermediate crude climbed 78 cents, or 1.01%, to $77.74 per barrel.

The U.S. Energy Information Administration (EIA) reported a substantial decline in crude inventories by 3.7 million barrels last week, surpassing analysts’ expectations of a 1.6-million-barrel draw.

Gasoline stocks also fell by 5.6 million barrels, while distillate stockpiles decreased by 2.8 million barrels, contradicting predictions of a 250,000-barrel increase.

Phil Flynn, an analyst at Price Futures Group, described the EIA report as “very bullish,” indicating a potential for future crude draws as demand appears to outpace supply.

Despite these positive inventory trends, the market is still wary of global demand weaknesses. Concerns stem from a lackluster summer driving season in the U.S., which is expected to result in lower second-quarter earnings for refiners.

Also, economic challenges in China, the world’s largest crude importer, and declining oil deliveries to India, the third-largest importer, contribute to the apprehension about global demand.

Wildfires in Canada have further complicated the supply landscape, forcing some producers to cut back on production.

Imperial Oil, for instance, has reduced non-essential staff at its Kearl oil sands site as a precautionary measure.

While prices snapped a three-session losing streak due to the inventory draws and supply risks, the market remains under pressure.

Factors such as ceasefire talks between Israel and Hamas, and China’s economic slowdown, continue to weigh heavily on traders’ minds.

In recent sessions, WTI had fallen 7%, with Brent down nearly 5%, reflecting the volatility and uncertainty gripping the market.

As the industry navigates these complex dynamics, analysts and investors alike are closely monitoring developments that could further impact oil prices.

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Oil Prices Climb as Markets Eye Potential US Rate Cuts in September

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Oil prices rose during the Asian trading session today on speculation that the U.S. Federal Reserve may begin cutting interest rates as soon as September.

Brent crude oil, against which Nigerian oil is priced, increased by 32 cents to $82.95 a barrel, while U.S. West Texas Intermediate crude oil climbed 34 cents to $80.47.

The anticipation of rate cuts stems from recent U.S. inflation and labor market data indicating a trend towards disinflation and balanced employment, according to ANZ Research.

The Federal Reserve is set to review its policy on July 30-31, with expectations of holding rates steady but providing clues for potential cuts in September.

The potential rate cuts could stimulate economic activity, increasing demand for oil. This optimism has been partially offset by recent concerns over China’s slower-than-expected economic growth, which could dampen global oil demand.

President Joe Biden’s announcement to not seek re-election and endorse Vice President Kamala Harris had minimal impact on oil markets.

Analysts suggest that U.S. presidential influence on oil production is limited, although a potential Trump presidency could boost oil demand due to his stance against electric vehicles.

In response to economic challenges, China surprised markets by lowering key policy and lending rates. While these measures aim to bolster the economy, analysts remain cautious about their immediate impact on oil demand.

With OPEC+ production cuts continuing to support prices, the focus remains on the U.S. Federal Reserve’s next moves.

Any decision to cut rates could further influence oil prices in the coming months, highlighting the interconnectedness of global economic policies and energy markets.

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Dangote Refinery Clash Threatens Nigeria’s Oil Sector Stability

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Nigeria’s oil and gas sector is facing a new challenge as a dispute between Dangote Industries Limited and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) intensifies.

The disagreement centers on claims by NMDPRA that diesel from the Dangote Refinery contains high sulfur levels, making it inferior to imported products.

The $20 billion Dangote Refinery, located near Lagos, has the potential to process half of Nigeria’s daily oil output, promising to reduce dependency on foreign fuel imports and create thousands of jobs.

However, the recent accusations have cast a shadow over what should be a significant achievement for Africa’s largest economy.

Industry experts warn that the ongoing conflict could deter future investments in Nigeria’s oil sector.

“Regulatory uncertainty is a major disincentive for investors,” said Luqman Agboola, head of energy at Sofidia Capital. “Any factor affecting foreign investment impacts the entire value chain, risking potential energy deals.”

The regulatory body, led by Farouk Ahmed, maintains that Nigeria cannot rely solely on the Dangote facility to meet its petroleum needs, emphasizing the need for diverse sources.

This position has stirred controversy, with critics accusing the agency of attempting to undermine a vital national asset.

Amidst these tensions, energy analyst Charles Ogbeide described the agency’s comments as reckless, noting that the refinery is still in its commissioning stages and is working to optimize its sulfur output.

In response, Dangote Industries has called for fair assessments of its products, asserting that their diesel meets African standards.

The refinery’s leadership argues that certain factions may have ulterior motives, aiming to stifle progress through misinformation.

As the dispute continues, the broader implications for Nigeria’s oil sector remain uncertain. The outcome will likely influence not only domestic production but also the country’s standing in the global energy market.

Observers hope for a resolution that supports both industrial growth and regulatory integrity, ensuring stability in a sector crucial to Nigeria’s economy.

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