Top global refiner Sinopec to cut crude runs by over 10% on Mideast supply squeeze, sources say

SINGAPORE: China’s Sinopec, the world’s biggest refiner by capacity, aims to cut throughput this month by more than 10% from its original ‌plan in response to a crude supply gap caused by the war in the Middle East, two sources familiar with its operations said.

The cuts by state-owned Sinopec, which accounts for a third of China’s refinery output, are part of Beijing’s widening measures to curb oil supply disruptions due to Iran’s blockage of the Strait of Hormuz, a conduit for 20% of the world’s oil.

Throughput is likely to fall by 600,000 to 700,000 barrels per day (bpd) on average in March, the two sources estimated, adding that ⁠the cuts exclude losses from plant maintenance planned before the Israel-US war on Iran began on Feb 28.A Sinopec representative said the company does not comment on operational matters.

Sinopec imports roughly 4 million bpd of crude oil, of which 2.4 million bpd come from the Middle East, including regular shipments under yearly contracts from Saudi Arabia, Kuwait, Iraq and Qatar.

China, the world’s biggest oil importer, brought in 11.55 million bpd last year, roughly half from the Middle East.

BEIJING TAKES MEASURES ON SUPPLY SQUEEZEThis week, Beijing ordered an immediate ban on exports of diesel, gasoline and aviation fuel to prioritise domestic supply. It also rejected Sinopec’s request to tap a government-controlled oil reserve, Reuters reported.

The planned cuts represent a decline of 11% to 13% from an initial plan to process 5.2 million bpd in March, one of the sources said.

“Sinopec has ‌little ⁠option other than cutting runs, and immediately,” said the second person.

In Asia, which buys 60% of its oil from the Middle East, refiners had already shut at least 1 million barrels of capacity since the start of the war, Reuters has reported.

Nearly 1.9 million bpd of Gulf refining capacity has been shut due to the war, consultancy IIR said on Tuesday.

FUELS PRIORITISED OVER PETCHEMSIn a further step to avert a shortage of domestic fuel, Sinopec will focus on ⁠maximising fuel output at the expense of petrochemicals production, which garners weaker margins, four people familiar with the matter said

Sinopec’s run cuts include last week’s shutdown of an 80,000-bpd crude unit at its Fujian Refining & Petrochemical Corp unit.

That facility also cut operations by 20% to 30% at its 1.1 million ton-per-year ⁠steam cracker, two people said this week.

Separately, Sinopec’s Zhenhai Refining and Chemical Corp also slashed operation rates at both of its steam crackers to around 70-80% of their combined capacity of 2.2 million tpy, one of the sources said.

On Monday, Sinopec-invested Fujian Gulei Petrochemical shut down ⁠its full complex, comprising a 1.1-million-tpy steam cracker, for maintenance through April, the company said in a notice.

Asia’s naphtha market is grappling with a lack of supplies, as the region takes about 60% of the petrochemical feedstock from the Middle East, with steam crackers cutting runs and declaring force majeure since last week.