China top refinery cuts output despite shortages

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BEIJING/SHANGHAI, Oct 30 (Reuters) China's largest refinery Zhenhai Refining&Chemical Co Ltd will shut a crude distillation unit in November for a one-month planned turnaround, an industry official said.

The closure comes as the country faces its worst diesel shortage in four years, which has caused rationing on the east coast.

Zhenhai refinery, a unit of state refiner Sinopec Corp, will switch off a 100,000 barrel per day crude unit in November and is expected to process 379,600 bpd, 3 percent less crude than in October, the refinery official told Reuters.

By cutting output at a time of such shortage, Sinopec, Asia's largest refiner, may be sending a signal to the government that it needs to ease its tight controls on retail pump prices, industry officials say.

Refiners face losses in China as they cannot pass on the increased costs from record oil prices to consumers.

China's economic planners, fearful of stoking social unrest as inflation nears a decade-high, have repeatedly ruled out an imminent fuel price hike despite oil prices hovering near a record a barrel.

Beijing last raised retail fuel prices 17 months ago.

A dozen gas stations in Shanghai, mostly run by Sinopec, told Reuters on Tuesday they had run out of diesel, and witnesses reported long queues of trucks desperate for refills blocked roads in eastern port city of Ningbo, extending a supply squeeze that started almost two weeks ago that hit most of coastal provinces.

''The diesel for today is already sold. I don't know when tomorrow's shipment will come,'' said a staff in a Shanghai gas station.

Sinopec said it was under growing pressure to supply more diesel, and blamed the shortage on decisions by independent refineries to cut production due to rising losses.

''Because of rising global oil prices since the third quarter and the capped oil product prices in China, some independent service stations stopped selling diesel, adding pressure for Sinopec to secure supply,'' Sinopec's Chief Financial Officer Dai Houliang told investors on Tuesday when announcing a 5.5 percent rise in third-quarter earnings.

China's small local refineries, which supply nearly 15 percent of the world's second-largest oil market, have cut output as they cannot pass on surging oil costs to rigidly capped Chinese fuel markets.

Zhenhai's maintenance work comes after a string of shutdowns in September when state-run oil plants launched heavy off-season maintenance to trim losses.

The closures limited last month's national throughput growth to 5.7 percent, the lowest in six months.

REUTERS DKS KN1934

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