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UPDATE 1-China refinery runs at 10-mth low amid inventory glut

(Adds analyst comment in paragraphs 5 and 7, oil price impact in paragraph 4, and further details throughout)

* July run rates at 10.71 mln bpd, lowest since Sept 2016

* July rates down 500,000 bpd from June

* Jan-July runs up 2.9 pct y/y at 11.04 mln bpd

BEIJING, Aug 14 (Reuters) - Chinese oil refineries operated in July at their lowest daily rates since September 2016, official data showed on Monday, to ease brimming inventories as state-owned oil giants faced off independents in a retail petrol price war.

China, the world's second-largest oil consumer, processed 45.5 million tonnes of crude in July, or 10.71 million barrels per day (bpd), National Bureau of Statistics (NBS) data showed.

This is 0.4 percent higher than a year ago but down about 500,000 bpd from June.

The drop in China's refinery runs and further indications of ample fuel supplies raised concerns about its oil demand in months ahead, knocking back global crude benchmark Brent on Monday and holding it just over $52 a barrel.

"Runs were slightly below our expectation, as fuel demand growth remained tepid and stocks were brimming," said Harry Liu, a downstream consultant with IHS Markit.

Faced with fierce competition from independent oil processors, who added to the product overhang, the biggest state refiner, Sinopec, lowered its runs in the third quarter after running at hefty rates in the first half of the year, Reuters has reported.

Sinopec also reduced its third-party purchases from the independents from June, leading the smaller operators to scale back production as well, Liu said.

Amid the glut of refined fuel products, Sinopec and state-owned rival PetroChina have been waging a retail price war against the independents known as "teapots" at the nation's petrol stations. The competition for sales started in late March and by June had spread beyond the most heavily oversupplied provinces in the north.

For the first seven months of the year, refinery output was up 2.9 percent from the same period of 2016 at 320.7 million tonnes, or 11.04 million bpd, the NBS data showed.

The data also showed domestic crude oil output fell 2.9 percent last month versus a year ago to 16.25 million tonnes, or 3.83 million bpd. That was down from June at 3.94 million bpd.

Crude output during January-July was down 4.8 percent from a year ago to 112.79 million tonnes, or 3.88 million bpd.

Natural gas production expanded 14.7 percent in July from last year to 11.7 billion cubic metres (bcm). For the first seven months of 2017, natural gas output gained 8.8 percent on year to 85.8 bcm, according to the NBS data. (Reporting by Chen Aizhu; Editing by Tom Hogue)