Domestic oil production in China is expected to continue its fall in 2017. China is one of the largest oil producers delivering 4 million barrels per day. Bloomberg reports:
China’s production is forecast to fall by as much as 7 percent this year, extending a record decline in 2016 … That’s about the same size as the output cut agreed by Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, which late last year reached a deal to trim supply to support prices.
While China consumes more oil than almost any other country, it’s also one of the world’s biggest producers, with fields stretching from offshore its southern coast to the far north east. The collapse in prices that began in 2014 is taking its toll, and the nation’s output suffered a record decline last year. That plays into the hands of OPEC as it seeks to prop up the global oil market, forcing China to depend more heavily on imports.
The collapse in domestic oil production leads to increase in China’s imports:
China’s oil imports in 2016 grew at the fastest pace in six years and the nation was the world’s biggest buyer in December. Inbound shipments climbed 13.6 percent last year, while imports in December rose to record 8.6 million barrels a day. This year, though, the Asian nation will boost its purchases by 4.8 percent, according to the median estimate of eight analysts in a Bloomberg survey last month.
The drop in oil prices is causing aging of the infrastructure, thus limiting potential for fast recovery in oil production even if high prices return:
There’s “little hope” the country’s aging oilfields can reverse the declines even as prices rebound, while new discoveries may not raise output as much as expected because of high production costs, said Bernstein’s Neil Beveridge, who forecasts the country will pump 4 percent less this year. Even after explorers improved efficiency over the past two years, the break-even point for new onshore oilfields is still about $50 a barrel, he said.
Unless the world oil consumption is reduced, the higher oil prices should be expected.