China's Oil Output Shrinks by 7.4%

China may boast one of the fastest growing economies on the planet, but according to the latest figures from the National Development and Reform Commission, domestic crude oil output in the People’s Republic is down by 7.4%. Official data revealed that production levels settled at 16.76 million tonnes in May, representing a significant drop from last year’s figure.

A strategic downturn

So what’s triggered the downturn? The slump was largely caused by state-owned oil company plans to slash output in the wake of deteriorating prices. This trend has seen production levels embark on a downward decline since the beginning of 2016, with output for the first five months of the year totalling 84.19 million tonnes. This is 4% less than the output seen in 2015.

‘Capex’ cuts spark production slump

As well as tactical embargoes by state-owned oil companies, nationwide capital spending (capex) cuts within the oil and gas sector have caused production to slip. In 2014 investment in China’s oil market dropped from $54.4 billion to just $39.4 billion, which has left producers foraging for loose change. And with market analysts predicting investment to drop even further (the $33.5 billion mark is being thrown around) in 2016, the outlook isn’t shining bright for Chinese crude.

Refined crude remains stable

That said, the refined crude oil industry has found its footing. The industry rose 9.8% to 214.33 million tons year-on-year, production spiked 8% to 133.33 million tonnes, while overall product consumption was up 3.5% to 118.51 million tonnes. The natural gas sector also experienced significant growth, with output increasing by 3.9% to hit 57.6 billion cubic meters.

As the world’s fourth largest oil producer, China plays a major role in flooding global crude markets. The knock on effects of its 7.4% production lapse are yet to materialise, however it’s no secret that producers are hoping that tightening supply will help to stabilise prices.  

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