China To Subsidize Refiners If Oil Prices Exceed $130

• The Chinese government has announced that it will subsidize refiners if international benchmark crude prices hit $130 per barrel.
• COVID lockdowns have crippled China’s refinery output.
• The Chinese government will offer subsidies to refiners initially for two months.

China will provide subsidies to its oil refiners if international oil prices jump to over $130 per barrel as the world’s largest crude oil importer looks to ensure fuel supply and protect businesses and consumers from surging fuel prices.

Should international benchmarks surge to $130 a barrel and stay there, the Chinese government will offer subsidies to refiners initially for two months, China’s Ministry of Finance said on Wednesday, as carried by Reuters. The subsidies will be calculated on the basis of the actual sales of diesel and gasoline of the refiners and fuel traders, according to the policy.

“(The subsidy) is to safeguard stable fuel supplies, ease costs for manufacturers and alleviate burdens for consumers,” according to the ministry.

Last month, China’s refining activity was very weak due to the COVID-related lockdowns. Strict lockdowns in Shanghai and the resulting depressed fuel demand led in May to the largest annual decline in Chinese refinery production in at least the past decade. China continues to implement its “zero-COVID” policy, which has triggered several limited lockdowns in major cities this month alone. The lockdowns have also weighed on international oil prices as the market fears a sudden new lockdown in the top crude importer.

Early on Wednesday, oil prices were rising by 1.5 percent, with Brent at over $119 per barrel—just over $10 a barrel before it reaches the Chinese $130-a-barrel trigger for refining subsidies.

The $130 oil level could soon be reached, at least according to Goldman Sachs. The investment bank continues to be very bullish on energy and believes that the upside risk in crude oil and refined products “is tremendously high right now,” Jeffrey Currie, global head of commodities research at Goldman Sachs, told CNBC’s Squawk Box earlier this week.

“At the core of our bullish view of energy is the underinvestment thesis,” Currie added.

“Ultimately, remember, the only way of solving these problems is to increase investment, so we stick to our guns of oil prices moving into the summer up into $140 a barrel range given record-level cracks, and that’s going to be a lot more upside to product prices,” Goldman’s Currie told CNBC.

By Tsvetana Paraskova for Oilprice.com

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