Oil Crisis Just Got Real: Sinopec (Read China) Cuts Off Oil Exports

Sinopec Station in Hong Kong
Wikimedia Commons image

Zero Hedge

As if a dollar in freefall was not enough, surging oil is about to hit the turbo boost, decimating what is left of the US (and global) consumer. Xinhua, via Energy Daily, brings this stunner: "Chinese oil giant Sinopec has stopped exporting oil products to maintain domestic supplies amid disruption concerns caused by Middle East unrest and Japan’s earthquake, a report said Wednesday. The state-run Xinhua news agency did not say how long the suspension would last but it reported that the firm had said it also would take steps to step up output “to maintain domestic market supplies of refined oil products”. Oh but don’t worry, those good Saudi folks are seeing a massive drop in demand… for their Kool aid perhaps. “Sinopec would ensure supplies met the “basic needs” of the southern Chinese special regions of Hong Kong and Macao, but they also should expect an unspecified drop in supply, Xinhua quoted an unnamed company official as saying.” Now… does anyone remember the 1970s?

The report said Sinopec has raised output of refined oil products this year, with its first-quarter production reaching 31.55 million tonnes, an increase of 6.2 percent from the same period last year.

Sinopec last month said its 2010 net profit rose nearly 14 percent on higher oil prices and strong domestic demand for refined oil and chemical products.

It reported a net profit of 71.8 billion yuan ($11 billion).

The Beijing-based company attributed the result to China's rapid economic growth, robust oil demand and "the increase in the price of crude oil, oil products and petrochemical products."

It had said at the time that it would continue to "expand markets" in China and overseas this year, while intensifying its exploration efforts in the country's western regions.

Oil prices have surged on supply concerns as governments in the oil-rich Middle East and North Africa are hit by popular uprisings, while the Japan quake and resulting nuclear crisis led the country to seek other forms of energy other than atomic.

And another perspective on how China just gave Geithner and his inflation exporting dreams the biggest, baddest middle finger, from Global Times:

China Petrochemical Corp (Sinopec Group), Asia's largest oil refiner by capacity, said Tuesday it had halted refined oil exports, except those to Hong Kong and Macao, in order to bolster domestic supply. Analysts said the move would help prepare for a possible domestic fuel shortage later this year.

Due to the turmoil in the Middle East and the earthquake in Japan, Sinopec is facing pressure just to meet demand at home, the company said.

The company will keep its refineries running at full capacity, but will cut petrochemical production and reduce the workload at its chemical plant installations to boost the domestic supply of refined oil, it said. It plans to produce 10.54 million tons of refined oil products in April.

The company did not say how much refined oil it would hold back from the international market.

"With the weather getting warmer, more cars hitting the road and increased demand from the construction, industrial and logistic sectors, the consumption of refined oil is expected to surge in April," said Wang Shunzeng, secretary-general of Beijing Petrol Circulation Industry Association.

Meanwhile, due to inflation and the rising price of crude oil, many private refineries have reduced production, making it necessary for State refiners to step in to fill the gap, analysts said.

China's refined oil inventories fell last month after hitting record highs at the end of February, the National Development and Reform Commission (NDRC) said Tuesday.

The country's apparent refined oil use in March reached a record high of 21.73 million tons, the NDRC said.

"The inventory of refined oil is actually still at the normal level. Sinopec's move suggested that it is making early preparations for peak demand in summer and a possible fuel shortage later this year," Zhong Jian, chief analyst with C1 Energy, told the Global Times.

The country had a shortage of fuels last year, especially a diesel shortfall in the fourth quarter when electricity cuts due to power rationing caused factories to use backup diesel generators to provide power, thus pushing up diesel demand.

Zhong said that China's crude oil processing capability would rise by 17 million tons this year, but this figure is lower than for the two previous years. He also said there would be a 4-million-ton shortage of diesel oil this year

Translation: Shit just got real, and is about to manifest itself in limit ups in both regular, and black gold.

Visit ZeroHedge for some of the best economic news and commentary on the Internet.