Communicator

Operating performance at small private Chinese refineries has plummeted to a two-year nadir. This downturn, excluding factors like the Shanghai quarantine and the onset of the pandemic, marks the most significant decline since nearly 2016. Notably, diesel constitutes the primary output of these "underground" refineries.

The impetus behind the refinery cutbacks stems from dwindling demand in various sectors, notably the housing market, as reported by Bloomberg. Concurrently, Chinese production has been on a downward trajectory since September.

Diesel prices have cascaded to their lowest echelon since July. In a bid to uphold respectable profit margins—reportedly hovering around the 10-year average, according to Mysteel OilChem—these refineries are curtailing production, albeit at the expense of volume.

Mysteel OilChem underscores the dire lag in diesel demand for refining, spanning from mining to infrastructure development.

"Serving as a cornerstone of China's refining capacity, underground refineries currently grapple with diminished profits from bitumen—a key component in road paving—as well as escalating crude oil prices," reports Mysteel OilChem.

A semblance of reprieve may emerge with the onset of the farming season and the potential renewal of U.S. sanctions on Venezuela, posits Energy Aspects Ltd., which could precipitate a dip in oil prices.

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