China's biggest oil refiner cutting run rates as Covid - 19 strikes

- China's biggest oil refiner is scaling back operations as Beijing's aggressive response to the delta virus variant saps demand for road and aviation fuel, says an analyst.

State-owned Sinopec, commonly known as China Petroleum Chemical Corp., is cutting run rates at some plants by 5% to 10% this month as compared with July levels, says Jean Zou, an analyst at Shanghai-based commodities researcher ICIS-China, in an interview. The analytics firm tracks refinery operations, maintenance plans and processing margins in China.

A Beijing-based official in the Sinopec press office declined to comment when contacted on the matter.

It is a worldwide phenomenon that millions of Chinese are holding travel plans amid the peak summer season and hunkering down at the government impose mobility curbs to stifle the reemergence of Covid 19 in the world's biggest oil importer. Beijing follows a strict containment approach despite having a higher vaccination rate than the U.S. prompting a reassessment of the global crude demand outlook.

Some Chinese refineries rolled out some of the run rate restrictions in the past week as Covid - 19 restrictions were rolled out, said Wang Lining, a researcher at an institute of China National Petroleum Corp., the country's largest energy company, without specifying the extent of the reductions.

Fuel demand was estimated to have dropped 30% over the period of 20 Aug to 6 August compared with early July, JLC said in a note released Friday. The company also said that there's likely a significant impact on consumption through the rest of the month.

China's strict Covid - 19 elimination strategy could also sap the economic expansion and energy demand in the longer term. While the policy will lead to a relatively costly domestic environment, it will likely be expensive for growth, Zhang Zhiwei, chief economist at Pinpoint Asset Management, said in a note.

Flight departures at China's 20 biggest airports fell in the week of Aug. 10 to just 40% of 2019 levels, according to BloombergNEF. The congestion in the immediate vicinity of the racial center was up to 83% of pre-virus level in early August, it said.

'The wide decline in traffic will put a heavy toll on fuel consumption, which will force producers like Sinopec and PetroChina to reduce refining run rates, Luxi Hong, a Beijing-based analyst with BNEF, said in a note.