Oil - China Long Boat Reaches Cruising Speed

| About: Global X (CHIE)

Summary

Chinese planner to raise retail prices.

Tracking data show slowdown in imports.

Companies seek ways to optimise performance.

After OPEC's meeting Wednesday, the shift in oil pricing is definitely expected to bring consequences. On the other hand, the sky is not going to fall either, nor there are parties that will win or lose very badly. The times we are living in demand that the risks be carefully hedged and that reckless bets be taken off the table. Chinese oil exploration and production would undoubtedly benefit from higher prices, as this would guarantee funds for investment. In the meantime, the National Development and Reform Commission will raise retail prices for gasoline and diesel in an anticipating move. We must note that weakening renminbi is amplifying the oil price jump effect, making it slightly more perceptible on both sides.

The tanker tracking data reflects some recent slowdown that could possibly be referred to as a calm before the storm, as the agreed production restrictions are due to take place in the beginning of 2017.

Chinese oil imports in November 2016. Cumulative chart.

(Source: Tanker tracking data, Bull And Bear Investor's calculations).

Regarding the structure of Chinese maritime oil imports, no significant changes were produced. The share of Saudi Arabia is fading while Angola stands firmer, and the supplies look well diversified in general. As we noted in the previous article about China, there are two international oil pipelines that pump in crude as well.

Chinese oil imports by a country of origin in November 2016 pie chart

(Source: Tanker tracking data, Bull And Bear Investor's calculations).

The Chinese authorities are busy working on ways to loosen the grip of dependence on foreign oil. The government is planning to invest some $174 billion in energy sector over the next four years, much of this to be spent on renewables-related projects. According to Xinhua, the private investment will be allowed to make its way further in upstream exploration sector and more oil- and gas fields will be introduced.

While some experts voiced a considerable amount of concern about underinvestment in the oil-producing enterprises amid sliding production levels, others argued that the market will effectively correct the situation when the outlook becomes more favourable. Curiously, the tender to supply the petroleum products to Bangladesh was won by China's Unipec and Swiss trader Vitol upon submitting the most attractive prices.

Chinese state-run oil companies are on the verge of structural changes: they are to become smaller and more efficient. China National Petroleum Corp. (CNPC) is about to split off its gas pipeline operation and gas sales into two separated units. China National Offshore Oil Corp. (CNOOC) was reported to have signed a split off its gas pipeline operation and gas sales into two separated units. China National Offshore Oil Corp. (CNOOC) was reported to have signed a cooperation agreement with Orion Group to create a joint venture that will become the world's first manpower supplier to one of China's largest oil companies.

On November 26, the Shanghai Petroleum and National Gas Exchange officially started operating after a trial period of one year. Backed by Chinese CNPC, Sinopec and CNOOC among others, this national-level trading center has ambitions to convert into a petroleum and gas trading and pricing center for the Asia-Pacific region.

Long-term strategies are at the core of Chinese planning. Wherever the price of fuel will find itself comfortable from now on, the Chinese energy sector seems to have all the chances to prove its resilience. To be updated soon.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The material presented in this article is provided for informational purposes only and is based upon information that is considered to be reliable.

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