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How Will Slowing Production Impact China’s Crude Oil Imports?

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China Crude oil production

China’s crude oil production averaged 4.3 MMbpd (million barrels per day) in 2015. This is 2.8% more than the levels that PetroChina (PTR) reported in 2014. It’s expected to slow down by 5% in 2016 due to lower crude oil prices. To learn more about the crude oil price movement read the first part of the series. PetroChina, China’s major oil producer, reported that its crude oil production will fall by 2.6% in 2016. As a result of lower oil prices, production at the old oilfields wasn’t economical.

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China’s crude oil imports 

PetroChina reported that China’s crude oil imports averaged 6.7 MMbpd in 2015. This is 9% more than China’s crude oil imports in 2014. China is the second-largest crude oil consumer in the world after the US. It’s also one of the largest crude oil importers along with the US. 

The key drivers for China’s crude oil imports are listed below.

  1. Building strategic reserves also led to the rise in crude oil imports. China increased its strategic reserves by 100 MMbbls (million barrels) in 2015. It’s expected to increase its strategic crude oil reserves by 60 MMbbls in 2016.
  2. The rise in demand from Chinese teapot refineries, due to strong refinery margins, led to the rise in China’s crude oil imports in 2015.
  3. Multiyear low crude oil prices motivated refiners to import more crude oil. 

Forecast for 2016 

PetroChina forecast that the fall in Chinese crude oil production in 2016 will lead to a 4% rise in Chinese crude oil imports. Market surveys suggest that China’s crude oil imports could rise by 6.2% in 2016—compared to 2015. The slowing Chinese economy could hamper oil demand. This could limit the crude oil imports. The devaluation of the Chinese yuan could also make crude oil expensive and hamper demand.

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However, the recent surge in crude oil prices benefits Chinese oil producers like CNOOC (CEO) and China Petroleum & Chemical (SNP). It also benefits US oil producers like Cimarex (XEC), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM). For more on US energy companies’ financial woes, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.

ETFs 

The roller coaster ride in crude oil prices influences ETFs and ETNs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the VelocityShares 3x Long Crude Oil ETN (UWTI), the United States Oil Fund (USO), and the ProShares Ultra Bloomberg Crude Oil ETF (UCO).

Read the next part of this series to learn more about crude oil prices.

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