China becomes petroleum products exporter

Chinese refineries seem to aim expanding their petroleum products export to make up for domestic slow demand. In March, the country's petroleum product export exceeded import for the first time since January 2010, according to the General Administration of Customs.

Chinese oil giant PetroChina recently announced that its refining sector earned 1.96 billion yuan of profit in the first quarter of this year compared to 1.56 billion yuan of losses a year ago. The company's sales profit in the period increased by 56.6% on year despite turnover fell 2.1% from a year ago.

The main cause of the improved profits could be new official petroleum price system that was introduced in late March 2013. Chinese domestic petroleum product prices are set by the government. Previously, these prices were reviewed based on international market prices in the past 22 business days. But the government shortened the review period to 10 business days last year. Therefore, risks of price gap between international crude oil and domestic petroleum products have been reduced.

On the other hand, I have sometimes reported that China is increasing crude oil procurement and refining capacity based on the rapid economic growth during 2000s but these supply abilities are exceeding the growth of local demand recently.
Especially, crude oil supply seems to be too much against the regional stockpile capacity, so Chinese refineries could be difficult to cut throughput rate.

Chinese refineries are likely to need maintaining relatively high crude oil processing rate because of such improved profitability and the physical constraint. The average throughput rate in the current month by major state-owned companies rose 4 percent points on year to 82% , according to Platts survey.

However, domestic demand does not show any sign of strong recovery. Although China has typically absorbed petroleum products from the international market, the nation could become a net supplier in the near future.


Is the consumption tax hike affecting on Japan's energy demand?

Economic slowdown is feared in Japan after the consumption tax hike on 1st April. Can we see any impact on the energy consumption before and after the tax rate hike?

Crude oil processing typically rises before summer and winter demand seasons, then starts decreasing toward maintenance seasons.

March is known as a time to start decreasing of demand in the cycle, however, strong fuel demand from the transportation sector sustained the crude oil processing rate last month. Transporters delivered large volume of goods for rush demand before the tax hike.

Crude oil processing in Japan had slowed down after December last year, and decreased on year in February. Although the processing rate rebounded to 3.9% on year of increase in March, it slipped again to the negative level in early April.

After the severe earth quake in March 2011, monthly electricity supply by Tokyo Electric Power Company usually has been decreased on year by the power saving efforts. But the electricity supply in February & March rose from a year ago.

Strong power demand in February was likely supported by chilly weather, however, the demand in March increased by 3.9% on year despite temperatures exceeded the previous average. Then its electricity supply in the first twelve days in April fell to 2.5% on year.

Data on the energy supply apparently show that the industrial activity in Japan increased in March, but can we assert recent declines in April as the strong reaction to it?

Crude oil throughput fell 0.5% on year against the 3.9% of increase in March, and the decrease rate of electricity supply in April is half of increase rate in the prior month.
Although we still need to keep watching the situation, it seems that there is no rapid extreme reaction after the tax rate hike.


WTI crude oil is losing internationality further

The primary index for global crude oil prices has shifted from the United States West Texas Intermediate to European Brent in the past couple of years. The reason is that WTI is losing its internationality due to the shale revolution in the north America. The tendency seems to have accelerated in this year.

WTI crude oil prices are diluting correlativity with Brent further after Keystone XL pipeline started 300,000 barrels per day of crude oil transportation from the U.S. Midwest to Texas in January this year.

Previously in the U.S., crude oil was typically imported in the Gulf of Mexico area, then transported to the Midwest, however, surge of domestic production after the shale revolution changed the situation.

Seaway pipeline reversed its transportation direction from the Midwest to the Gulf in May 2012. Its transportation quantity had increased from the original 150,000 bpd to 400,000 bpd in January 2013.

The Keystone XL pipeline which has 700,000 bpd capacity started operations in early this year, and an additional 450,000 bpd facility of Seaway pipeline is scheduled to open traffic in May. Therefore, total volume of oil transportation from the Midwest to the Gulf of Mexico will be 1.55 million bpd.

After the Keystone XL pipeline started operation, crude oil transportation between the regions seems to have exceeded the equilibrium point. Crude oil stockpile in the Midwest started decreasing sharply and that in the Gulf reached the record high level.

Since imports by tanker into the Gulf area are decreasing, the stockpile is being lifted by crude oil that comes from northern U.S. and Canada with passing through the Midwest. To buy reasonable North American crude oil and reduce tanker imports seems to be appropriate decision by Gulf refineries.

From the beginning of this year, WTI crude oil prices have been supported by decrease of stockpile in Cushing, Oklahoma despite apparent increase of the U.S. total crude oil stocks.

This situation might change if WTI's price superiority against Brent disappears. Meanwhile,  crude oil production in the U.S. is expected to increase further and imports are predicted to continue shrinking.

Status as price index of WTI may lower further, since it is more rely on stockpile in Cushing than the supply situation in the Middle East or West Africa.