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China Poised to Overtake the US in Oil Production

Plus500 | Monday 23 November 2020

China has increased its Oil production, preparing to add 1.2 million barrels daily to the market as prices hold above $42 per barrel during early morning trading for the first time since early September.

China's oil

Earlier this month, as Royal Dutch Shell (RDSA-L) announced the closing of its Louisiana Covent refinery without being able to find a suitable buyer, China was continuing forward with its ambitious Oil refinery expansion. Shell announced that this decision was driven by a strategic consolidation to combat the effects of a low-carbon future. 

Meanwhile, China was busy bringing its new Rongsheng Petrochemical refinery in the Zhejiang province online. Once fully operational, this refinery will add an additional 1.2 million barrels of Oil (CL) per day to this Asian leader’s already growing presence in the industry and possibly impact the global price of this commodity.

If Oil production continues at its planned pace, China will surpass the US’ production capacity by next year. This is after ranking 4th in 2016. 

The demand for the carbon-based fuel is in part to China’s significant economic growth. Plastics, petrol, diesel, and other petroleum products are powering China’s recovery from the economic impact of COVID-19. By extracting and refining its own Oil, China gains increased independence from needing to import this valuable commodity from around the globe.

Green New Deal

This focus on Oil production in China is taking place as the US and UK are attempting a pivot away from carbon emissions. 

Considering the idea of rejoining the 5-year-old Paris Climate Agreement, President-Elect Joe Biden may choose to update the Obama administration's commitment of reducing emissions by up to 26% below 2005 levels in the next 5 years. This will require the US to review domestic Oil consumption, following the current administration’s exit from the agreement.

It remains to be seen how markets will react to an increased Oil supply in the market as OPEC and other producers struggle to return Oil to its earlier highs.


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