China Aug oil demand up 7.8pc on year, but slowest this year

BEIJING: China's implied oil demand in August slipped to the lowest rate this year as plant maintenances and accidents cut into refinery production, but on a year-on-year basis expanded 7.8 percent, Reuters calculations based on preliminary government data show.

Fuel consumption in the world's No.2 consumer has been losing steam since May, with growth easing off the double-digit expansion seen since last year as a result of climbing crude costs that have squeezed refining margins and as Beijing's credit tightening moves cut into fuel spending.

But despite the easing growth, China would still make up some 46 percent of the world's incremental oil demand this year, according to an estimate by the International Energy Agency last month.

Implied demand -- crude throughput plus net imports of refined oil products -- was about 8.94 million barrels per day, up 7.8 percent from August 2010, but dipped to the lowest rate so far this year. The calculations do not include inventory changes that the Chinese government rarely publishes.

"Oil demand growth from the coastal area has slowed but that of the central and western parts of the country is picking up more rapidly," said Dai Jiaquan, an oil market researcher with CNPC, parent of PetroChina.

So on a net basis, demand growth is still largely on track for an annual growth of about 6 percent for the whole of 2011 as CNPC forecast at the beginning of the year, said Dai.

Economic activities in the inland regions were picking up due to lots of infrastructure, mining works and as many factories were relocated from the over-crowded and polluted east.

Macro data released on Friday suggested economic growth continued to ease in August, but domestic demand held up relatively well, soothing long-running investor fear of a hard landing in the world's second-largest economy.

Car sales in China, the world's largest auto market, rose 7.3 percent in August from a year earlier, rebounding steadily from a decline in May, and the uptrend is expected to extend into September and October the traditional peak auto-selling season, a trend set to bolster China's gasoline use.

Trade data released earlier on Saturday also showed China's August export rose by a stronger-than-expected 24.5 percent.

RUNS TO RISE, DIESEL IMPORTS EYED

Refinery production curbs was a key factor behind the dip in apparent demand for August, as plants underwent overhauls and several refinery accidents further cut output.

Refinery throughput rose 4.5 percent last month over the same month in 2010, one of the slowest growth in nearly two years and on a daily basis the processing rate was the second-lowest this year.

PetroChina's Dalian Petrochemical Corp, the largest plant under the state oil giant, shut in its 200,000 bpd crude unit in mid July after a fire and only restarted end of last month. A diesel tank caught fire at the same plant in late August, the second fire in less than two months that in the end cost the job of the plant manager.

But industry officials expect demand to hold steady or pick up in the coming months, as several new refining facilities start on line and as plants wind up maintenances.

Seasonally, Chinese fuel demand should also accelerate from September as fishing ban ends, autumn harvest begins and builders resume normal constructions works after rainy season ends.

Top refiner Sinopec will lead in the coming months in lifting the crude throughput by starting on line some 260,000 bpd new capacity at two of its plants -- Changling in central Hunan province and Beihai in southern Guangxi region.

The refiner said during its earnings briefing in late August that it planned to raise second-half crude processing by 5 percent versus the first half.

Companies may also need to replenish fuel stocks after trimmed throughput for the past three months led to thinning refined fuel stocks.

PetroChina , the second-largest refiner after Sinopec Corp, already stepped into the market to buy 60,000 tonnes of diesel for September in a rare purchase after shying away from the Asian diesel market for most of this year.

Copyright Reuters, 2011