China’s top oil refiner to cut output as Delta hits

China’s biggest oil refiner is scaling back operations as Beijing’s aggressive response to the Delta coronavirus variant saps demand for road and aviation fuel, according to an analyst.

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

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

Millions of Chinese are shelving travel plans amid the peak summer season and hunkering down as the government imposes mobility curbs to stifle the re-emergence of Covid-19 in the world’s biggest oil importer. Beijing is following a strict containment approach despite having a vaccination rate higher than the US, prompting a reassessment of the global crude demand outlook.

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

Fuel demand is estimated to have dipped 30% in the July 20 to Aug. 6 period compared with early July, JLC, a local consultant, said in a note released on Friday. There’s likely to be a significant impact on consumption through the rest of this month, it said.

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

The number of seats being offered by Chinese airlines plunged by 32% in a week, according to data from aviation specialist OAG. Road traffic has dropped across all cities that have experienced a rise in Covid-19 cases. On average, traffic has dipped to 70% of normal levels for the cities affected by the outbreak, according to BloombergNEF.

“The wide decline in traffic will take a heavy toll on road 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.

Bloomberg News. More stories like this are available on bloomberg.com