Firms urged to mitigate oil price risks

The OPEC+ alliance's decision to extend reduced oil production will result in short-term fluctuations in oil prices but have a limited impact in China, industry experts said.

Incremental demand for crude oil in the country will be limited, thanks to its efforts in domestic oilfield exploration, increased reserve capacity and electrification of transportation in recent years, they added.

The Organization of the Petroleum Exporting Countries, or OPEC, agreed on Sunday, along with allied nations, to extend a cut in oil production during a meeting of the OPEC+ Joint Ministerial Monitoring Committee in Vienna, Austria.

The bloc, which groups 13 core member nations and 11 allied non-member countries and produces around 40 percent of the world's crude oil, also said it would reduce overall production targets from 2024 by a further total of 1.4 million barrels per day.

Industry experts said the decision was made amid growing fears over a weak global economy and its impact on demand. Oil producers have been grappling with falling prices, which plummeted about 10 percent since the April cuts were announced.

While this might affect importing costs for major oil importers such as China, the country's recent efforts in boosting domestic oil output, increased reserve capacity and green energy transition will help cushion the negative influence, said Luo Zuoxian, head of intelligence and research at the Sinopec Economics & Development Research Institute.

China's dependence on crude oil imports has been decreasing in recent years. The dependency rate dropped to 71.2 percent last year, down from 72 percent in 2021 and 73.6 percent in 2020, and the country's crude oil imports declined last year to 508 million metric tons, down 1 percent year-on-year, he said.

Wang Lining, director of the oil market department at the Economics and Technology Research Institute at China National Petroleum Corp, suggested domestic companies plan ahead and secure resources in advance, in order to ensure a stable supply of resources in response to the short-term fluctuations in oil prices.

As China's crude oil imports this year are expected to reach 540 million tons, up 6.2 percent year-on-year, it is necessary that domestic companies make good use of futures tools to mitigate price risks to effectively respond to external uncertainties, he said.

Sunday's agreement to further cut production was aimed at mopping up what OPEC sees as a glut in the amount of oil available globally, which it says has kept the selling price of oil too low, Reuters reported.

Other major oil producers that are not part of the OPEC+ bloc, including the United States, have decided in the past to offset some of the output cuts made by OPEC+ by ramping up their own production.