The top Asian refiner, China’s state-controlled Sinopec, plans to slash this month its refinery processing rates by 11-13% as crude supply is choked by the Middle East war, Reuters reported on Friday, quoting sources with knowledge of the refining giant’s operations.
Sinopec, whose refineries account for a third of all Chinese throughput, plans to lower its crude runs by between 600,000 and 700,000 barrels per day (bpd) in March, from initial plans to process 5.2 million bpd. The loss in refinery throughput does not include regular refinery maintenance that was planned or started before the war, according to Reuters’ sources.
The plan to cut rates at Sinopec is part of China’s broader push to preserve fuel supply for the domestic market amid the crude supply crisis, which has already resulted in a ban to all fuel exports from earlier this week.
More than half of Sinopec’s daily crude imports of 4 million bpd, namely 2.4 million bpd, come from the Middle East via annual term contracts with Saudi Arabia, Iraq, Kuwait, and Qatar.
“Sinopec has little option other than cutting runs, and immediately,” one of the sources told Reuters.
Sinopec is also set to prioritize fuel output to petrochemicals to ensure sufficient supply to the Chinese market and benefit from the soaring fuel cracks.
Overall, the war could force up to 6.0 million bpd cuts to crude runs across Asia in April, as refineries face severe supply disruption with 65% dependency on Middle East crude, Wood Mackenzie analysts said earlier this week. That’s under a worst-case scenario in which existing emergency stockpiles are not used, according to WoodMac.
The consultancy’s current analysis assumes refiners can get access to the emergency stockpiles. Under this scenario, the impact on the crude runs for April 2026 would be China cutting rates by 750,000 bpd despite adequate stock levels, and India slashing utilization by 8%, that is, reducing runs by 400,000 bpd.
Global fuel markets will only tighten from here, as Asia reduces or bans exports, and fuel supply from the Middle East is slashed.
More than 3 million bpd of refining capacity in the Middle East region has already shut due to attacks and a lack of viable export outlets, the International Energy Agency said in its monthly report on Thursday.
“Runs elsewhere will be increasingly limited due to feedstock availability,” the IEA noted.
By Charles Kennedy for Oilprice.com
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