​China roils the oil markets

China’s oil majors scale back output as priorities shift - FT.com

China cuts production of oil.

​More below.

"A shift in Beijing’s priorities away from production targets has allowed Chinese oil companies to halt output in maturing oilfields, a previously politically unpalatable decision that leaves them better placed for an eventual recovery in oil prices.

International majors routinely scale back production from high-cost fields when oil prices fall, but in China, for decades, the government mandate has been to increase domestic supply and ensure energy security.

“In years past, they were under pressure to produce higher numbers every year, even if they were producing uneconomically. Now that pressure is gone,” said Laban Yu, head of Asian energy research with Jefferies.

In the past week both PetroChina and Sinopec reported declines in oil production for the first half of the year. Sinope said domestic crude oil output fell 13 per cent versus a 3 per cent drop in its overseas operations, while PetroChina reported a 4 per cent decline in domestic production."

China has been buying and storing oil like mad, it has sufficient stores to allow its Tea Pot refiners to crack, and sell as much as they can, which is flooding the Asian markets with fuels. Essentially, Asia is awash in oil, gas, and diesel.

China, the US, and a number of other producers are so flooded they are becoming net exporters of oil, and while they continue to develop oil fields they also are sitting on them waiting for higher prices. This bodes very poorly for the recovery of the price of oil. Supply continues to develop, while demand is weak, and weakening. 

Expect this to continue, it likely has become the new dynamic which will drive oil for an extended period of time.