Chinese production continues to fall due to aging assets as demand grows

Demand for crude oil at Chinese refineries continues to grow as the country’s aging oil properties slow production. Chinese production fell the most month-over-month since November 2011 in April, reports Bloomberg, down 3.2% from March. Meanwhile, the country’s refiners processed a record 10.93 MMBOPD of oil. The production declines “will help rebalance the market and will be positive for prices,” according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

Chinese production and refinery demand

Declines in Chinese production “will increase imports and heighten long-term energy-security concerns,” Beveridge said. “The cuts in capital investment are now having a significant impact on production as China reaches ‘peak oil’ production.’’

Low oil prices have forced Chinese oil companies to cut production as they scale back operations. China’s largest oil and gas producer, China National Petroleum Corp. (CNPC), reported its full-year profits fell 26% year-over-year in 2015. PetroChina (ticker: PTR), the publicly traded arm of CNPC, will likely report lower oil and gas production for the first time in 17 years as it shuts in uneconomic fields, said Standard Chartered Plc.

The company’s flagship asset, the Daqing field, is expected to see output fall 1.5 million metric tons this year, according to Su Jun, general manager at the production and operations department. The decline is roughly 30 MBOPD, or 4% of the field’s total production.

“The trend will likely worsen in the months ahead amidst cost-cutting initiatives,” said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong. “China’s production decline, together with that of the U.S. shale patch, will help to rebalance the oil market toward late 2016, as global demand continues to hit all-time highs.”

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