China’s oil output falls by the most in 15 years

Jun 13, 2016 12:00 AM

The glut of oil brought on by OPEC’s decision to defend market share continues to put pressure on producers around the globe, particularly in China.

China’s largest oil and gas producer, China National Petroleum Corp. (CNPC), reported 2015 profit was less than half of what it was in 2014 as the company struggles with lower prices. China’s oil output has been declining sharply amid the global glut, with the country reporting its largest decline in year-over-year output in 15 years.

China’s oil output fell 7.3% year-over-year to 16.87 million metric tons, reports Bloomberg, the biggest decline since February 2001.

The drop in China’s oil output is just one of many examples of lower oil prices forcing producers around the globe to shut in uneconomical production.

PetroChina, CNPC’s publically listed arm, said it expects oil and gas output to fall for the first time in 17 years as it shuts in fields that have “no hope” of turning a profit, while CNOOC, the country’s offshore producer, sees output declining as much as 5.2% this year.

This fall in domestic oil production will push demand for imported crude oil higher, hopefully rebalancing markets faster. Many of those barrels are expected to come from the Middle East and Russia, according to Gordon Kwan, head of Asia oil and gas research at Hong Kong-based Nomura Holdings Inc. The slump in China’s oil output is “worse than our forecast,” he said.

Chinese coal production also falling sharply

Coal production is also slipping in China as the country shifts toward lower-emission fuels. Data from National Bureau of Statistics showed coal production is down 15.5%. Coal output dropped to 263.75 million tons in May, according to the bureau, the most since the bureau resumed reporting those figures in April 2015.

Lower production is helping to boast coal prices, however. Spot power-station coal at the port of Qinhuanqdao, a domestic benchmark, rose for the second time in three weeks to 400 yuan a ton as of Sunday, the highest level since September.

Rising oil prices might not bring back production in the U.S.

China is far from alone as many other producer around the world wait for relief from low oil prices. Production in the U.S. fell below 9 MMBOPD, helping to bolster oil prices from 13-year lows. Oil’s recent rally to above $50 per barrel had some worried that U.S. production might come surging back, but many, like Tapstone Energy CEO Tom Ward, do not see rising oil prices bring back a wave of production.

“There’s no increase in the capital spending, the debt side of the business is closed, and so until we have something fairly dramatic happen like maybe a doubling of the rig count, I don’t think we can grow production in the U.S.,” he said in an interview with CNBC.

Tapstone Energy currently has three rigs online, down from four, and Ward said there are no plans to add more rigs. It’s the same across the industry, he said, because of the lack of access to capital markets.

“I think prices will have to move up even higher than we’re talking about for there to be a big change in the rig count,” said Ward. “We can’t change the decline of the oil production in the United States without more capital, and right now that’s just not available.”

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