Cheap Oil Spurs Record China Crude Runs
OREANDA-NEWS. October 31, 2014. Even amid a slowdown in economic growth, one government statistic on Tuesday showed China isn’t one to miss out on a good bargain.
Beijing said crude-oil processing volumes reached a record high in September. Some analysts said that is likely coming from stockpiling by refining companies due to bargain-basement prices, rather than a consumption bump.
“If crude runs are high, that is because import prices of oil are very low and companies are replenishing their inventories,” said Miao Tian, an analyst for investment bank North Square Blue Oak.
A flood of new crude on global markets and weak global demand are sending prices for oil to four-month lows, with New York prices posting their biggest one-day drop last week in nearly two years. Some analysts predict the price will fall as much as USD10 a barrel lower in coming months. The International Energy Agency has cut its full-year oil-demand growth forecast to its lowest level in five years.
China’s crude runs last month reached 10.3 million barrels a day, pipping the previous record of 10.2 million barrels in December 2012, the National Statistics Bureau’s data showed.
The volume of processing contrasts with a dip in electricity output—which some analysts consider a closer proxy for economic growth—by 8.4% from August to 454.2 billion kilowatt-hours in September. China said its economy in the third quarter grew at its slowest pace in five years, making it likely that the country will miss its annual growth target for the first time since 1998.
China’s crude-run performance reflects a similar trend in crude-steel production, where output rose 1.4% from August to a daily average of 2.25 million metric tons. That is not because Chinese industry is buying more steel. Five-year lows in prices of iron ore, which have fallen 40% so far this year, are prompting mills to stock up on the steelmaking material and make more steel products with it, with surplus stock being exported cheaply at record levels to make up for waning domestic demand.
“Global steel-production growth in 2014 remains muted with China, the key driver of iron ore consumption, continuing to slow,” Moody’s Investors Service said in a report. Consumption levels will continue to lag steel output growth for the remainder of the year, Moody’s analyst Carol Cowan said.
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