China Oil &Gas Monthly:Oil demand rebound led import surge;NDRC halts crude import applications

Oil import reliance at all-time high 69%; proof of energy efficiency over security

    China crude oil demand rose by 10% YoY, while domestic crude oil output fell4.6% YoY in March, resulting in an 18% YoY increase in oil imports. China’sreliance on oil imports reached an all-time high of 69%, with Chinese oil majorsexpecting oil production cuts of 4.1% in 2017E, clearly prioritizing energyefficiency over energy security in the 13th FYP. Conversely, NDRC has ceasedaccepting new crude oil import applications of teapots starting from May 5, butwe believe teapots’ run rates will continue to be high. The approved importquota accounts for 80% of teapots’ 2016feedstock consumption. We reiterateour Buy call on Kantons as China’s only oil jetty proxy.E&P: strong oil demand from SPR; 1Q17China gas demand a black box

    1Q17oil demand grew 6.5% YoY, with 68% of the incremental demand fromrefinery throughputs and 32% likely an outcome of SPR builds. By end-March,commercial crude inventory fell 2.2% MoM. In March, gas demand was up5.9% YoY as driven by winter gas demand; production growth reaccelerated to10.7% YoY, while pipeline import declined 15.8% YoY in March. Moreover,pipeline gas import price dropped 4.4% MoM as a result of the weak oil price.According to the National Bureau of Statistics, 1Q17apparent demand for gasrose 3.8% YoY, while the NDRC recorded 9.6% YoY. The discrepancy could bedue to the gas flow of storage facility and import volume.Refining: brake on new oil import quota won’t hurt teapots’ run-rates

    China refinery throughput was up 5.8% YoY in March vs. 4.8% YoY in 1Q17onhigher teapot run rates. However, demand was flat YoY for major refinedproducts (gasoline, diesel & kerosene), and saw net exports surging 38% YoY.China GRM averaged US$9.4/bbl (-US$1.8/bbl MoM) in March; its premium toSG GRM narrowed to US$3.6/bbl (-US$1/bbl MoM). Conversely, China GRMaveraged US$11.8/bbl in April (+US$2.4/bbl MoM) due to the drop in feedstockcosts. With lagging effects, gasoline/diesel prices were cut by RMB250/235perton on May 12. Besides, we expect China GRM to maintain a healthy premiumto SG GRM in May, with China’s CDU outage expected to increase 19% MoMto 1.8mmtpa and Asia’s outage up by 3% MoM to 2.4mmtpa.Chemicals: 1Q17China chemicals demand continued to be strong

    Major intermediate chemicals saw strong YoY demand growth in March, withPropylene posting 11.5% growth and Benzene +11%, while Ethylene grew just1.7% (despite PE +5.2%), partly due to the domestic maintenance period withoutputs (-5% YoY). Demand for resins continued to be strong at 8.2% YoY, ledby PS and PVC. Most Asia spreads posted MoM gains except Benzene andMEG. Most noticeably, Butadiene spreads’ surge continued (+23% MoM),followed by PS (+16% MoM). Ethylene spread grew 3.3% MoM and regainedmomentum in April (+13% MoM) with the rebound in Ethylene prices, whileNaphtha prices softened. Fertilizers: Urea and potash remained flat MoM.OFS: offshore supply woes persist; onshore rigs count pulled back

    Globally, 110rotary rigs were pulled back over the last two months, driven bythe Canada region. Global utilization of jack-ups remained flat MoM at 58% inApril, while semi-subs utilization rate dipped 1% MoM to 48%. JUs’ day ratesimproved 15% YoY in April, while, semi-subs day rates further dipped by 29%YoY. With 154new rigs under construction and orders at a standstill, thesupply woes should persist.