China is downside risk for oil prices as OPEC meets: Analyst

by Dramelin 6:00 PM 0 comments

Moody`s Investors Service on Wednesday downgraded China`s credit rating to A1 from Aa3, changing its outlook to stable from negative, citing concerns efforts to support growth will spur debt growth across the economy.
That could be problem for the oil industry that has been propped by the East Asian giant as imports grow in China.
"Without China, the oil market cannot survive," said industry consultancy FGE`s founder and chairman Fereidun Fesharaki at a Center for Strategic and International Studies discussion in Washington D.
Asian demand for crude has grown he added, even as Middle Eastern demand growth has fallen due to reduction in energy subsidies across most countries.
Meanwhile, production has been falling in China, spurring greater imports, he noted.
39 million tons of crude oil in April, about 8.
4 million barrels a day and up 5.
5 percent from a year ago, Reuters reported.
This is as China`s domestic crude oil production fell 3.
7 percent in April from a year ago to 15.
99 million tons, or 3.
89 million barrels a day.
Output for the first four months was down 6.
1 percent from a year ago, Reuters reported.
Fesharaki said China is likely to import a additional 900,000 barrels of oil a day this year over 2016.
On Sunday, China announced new guidelines for the oil and gas industry that will allow for more private participation, but the regulated environment will still present headwinds against the backdrop of a challenging macroeconomic environment.
In a report on Tuesday, BMI Research noted headwinds for independent refiners or "teapots" in China, including limited storage and pipeline capacity in the Shandong province, where around 70 percent of China`s independent refiners are located.
"Onshore crude stock levels in Shandong are reportedly at a multi-month high, and the volume of crude cargoes stored in floating tankers is on the rise, which points to the need for additional storage and distribution infrastructure to remove supply bottlenecks," said BMI.
"A slew of other policies , including tighter scrutiny of tax compliance could further hamper teapots ` operations, and pose downside risks to teapot imports," the house added.
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