China, S. Korea Refiners Cut Output on High Stocks

Sinopec Corp, Asia's largest refiner, and South Korea's S-Oil Corp will process less crude in June to trim high oil products inventories and as refining margins weaken, industry sources said on Thursday.

The cuts in refining output could depress crude prices further as the global market struggles with economic slowdown and ample oil supply from higher OPEC and North American output.

Sinopec Corp will reduce its crude throughput by more than one million tonnes, or 243,000 barrels per day this month, versus an earlier output target, to trim high domestic inventories as demand slows, the sources said.

The cuts represent roughly 5-6 percent of Sinopec's average daily output target for this year at 4.5 million bpd.

"The run level will be reduced quite deeply for this month. Almost every plant is taking some cuts, because demand, especially of diesel, is weak," said one Sinopec refinery source.

"The diesel stocks are brimming," said another.

Chinese refiners normally set their monthly production targets the previous month, but they sometimes make last-minute adjustments based on domestic supply and demand situations.

The sources did not provide a total throughput rate for June, or a level of May operations, but one said on average Sinopec processes 18-19 million tonnes of crude a month.

Diesel sales in some areas posted negative year-on-year growth in April and May, a Sinopec fuel marketing official told Reuters last week, as demand from industries slowed.

Implied oil demand in China, the world's second-largest fuel market, inched up 0.4 percent in May year-on-year, and rose marginally from April, when the figure fell for the first time in more than three years.

In South Korea, S-Oil reduced the operating rate at its refinery to 93 percent in June from full capacity in the previous month after refining margins weakened, industry sources said.

The third largest South Korean refiner was reacting to a slump in Asia's naphtha crack to a 3-1/2 year low on poor petrochemical demand in China, they said.

Asia's naphtha margins have lost almost 95 percent of the value in three months to $8.20 a tonne premium on Thursday versus $162.60 a tonne on March 14.

SK Energy, South Korea's largest refiner, is keeping its crude throughput steady at a comparatively lower rate of 80 percent on support from firm fuel oil margins, a trader said. The company has a total refining capacity of 1.115 million bpd at two complexes in Ulsan and Incheon.

Oil prices have tumbled over the last month with many traders viewing the market as over-supplied given the poor economic outlook for the eurozone, slowdowns in the United States and China, and declines in demand for oil products.

Almost a quarter of Europe's refinery capacity was offline in May, figures from industry monitor Euroilstock showed, as refiners cut runs to unseasonally low levels in response to declining demand for gasoline and diesel.

OPEC is prepared to keep oil output limits on hold on Thursday, leaving swing producer Saudi Arabia to unilaterally decide whether it needs to scale back supplies to stem a price slide. (reuters, Edited by Topco)