Part A: Review (2018/11/5-2018/11/9)

From November 5, 2018 to November 9, 2018:the closing price of crude oil futures SC1812 contract on Friday was 495.4 yuan, 15.3 yuan lower than the closing price of the last trading day of last week. The highest price for this week is 517.4 yuan/barrel, and the lowest point is 492.5 yuan/barrel.

This week (2018/11/5-2018/11/9), the total volume of SC1812 contract was 1,553， 050 lots, a decrease of 122,828 lots from last week. After the close of trading this Friday, the open interest of SC1812 contract was 31,990 lots, a decrease of 1,372 lots from the last trading day of last week.

Part B: Market Dynamics

1. Refined oil market

(1) Average refining profit

The data shows that the average refining profit of private refineries in Shandong Province from January to October 2018 was 266 yuan / ton, an increase of 82%, but the main reason is that after the sale tax collection policy is improved, the ex-factory price of the refinery is greatly increased and passed to the terminal, and the cost of consumption tax burdened by refineries has increased significantly from previous years.

(2) Average retail/wholesale profit

On November 2, the retail price of refined oil products was significantly reduced. Although the wholesale price continued to fall, it fell less than the retail price in the short term. As a result, the price difference between the wholesale price of gasoline and diesel and the retail price showed a short-term decline and then rebounded.

The data shows that as of this Thursday (November 8), the average retail profit of domestic 92# gasoline was 1,722 yuan / ton, down 23 yuan / ton from last Thursday; the average retail profit of 0 # diesel was 923 yuan / ton, down 147 yuan / ton from last Thursday.

Next week, the retail price will remain stable for the time being, and the refined oil wholesale market may continue to be weak. Therefore, it is expected that the domestic product oil price difference will continue to rise.

2. China International Import Expo(CIIE)

On November 7, 2018, China National Offshore Oil Corporation held the “Offshore Oil Cooperation and High Quality Development Forum” during the first China International Import Expo. At the subsequent special signing ceremony, CNOOC signed cooperation agreements and procurement contracts with many foreign suppliers such as Siemens and Total, with a total contract value of approximately US$10 billion.

On November 7, 2018, the “Oil and Gas Industry Sustainable Development Forum and Signing Ceremony” hosted by PetroChina was successfully held. PetroChina signed a cooperation agreement with 23 internationally renowned suppliers. The total amount of on-site signing agreements was approximately $29.2 billion. Among them, China National Petroleum International Co., Ltd. signed contracts with Saudi Arabian Oil Company, Kuwait National Petroleum Company, Methanex Asia Pacific Co., Ltd., GS Caltex, Qatar Natural Gas Operation Co., Ltd.

Sinochem Group and 17 partners signed a purchase agreement at the site of the Expo to import 19 kinds of commodities mainly based on crude oil, high-quality fertilizer and high-end chemicals, with a purchase amount of over US$11.3 billion.

Wanhua Chemical Group and Honeywell signed a cooperation agreement to monitor the UOP C3 OleflexTM propane olefin plant at its Yantai plant in Shandong using the Honeywell Interconnect Factory Process Reliability Advisor. This is the first time that process reliability advisor have been applied to the Chinese market. Wanhua Chemical has the world's largest OleflexTM process unit, which converts propane to propylene with an annual production of over 750,000 tons.

Zhejiang Petrochemical and Honeywell signed the Memorandum of Understanding on the Construction of Intelligent Interconnected Plants, and reached a new cooperation intention on the integration of 40 million tons of refining and petrochemical projects in Zhoushan, and committed to creating a more modern and intelligent next-generation interconnection factory. After the completion of the Zhejiang Zhoushan Refinery and Chemical Integration Project, it will become one of the world's largest joint petrochemical bases.

Related reports——Chinese crude importers agree 2019 term deals

Beijing, 9 November (Argus) — Chinese crude importers have tied up 2019 term supply deals with global suppliers at a major import-focused expo in Shanghai this week.

Trading firm Mercuria, BP and state-owned Saudi Aramco and Kuwait's KPC have agreed deals with some of China's top buyers, maintaining their foothold in the world's top import market.

Mercuria will sell about 50mn bl (137,000 b/d) to state-owned ChemChina in 2019, roughly in line with supplies this year. The deal, signed during the China International Import Expo in Shanghai today, is valued at around $3.5bn, Mercuria president Daniel Jaeggi said.

Mercuria will co-operate with ChemChina to source and trade the crude. The Chinese firm bought a 12pc stake in Mercuria in 2016, and said in April it would expand the relationship, with the trading company taking a minority stake in ChemChina's refinery operations as part of the deal. Mercuria has been supplying around 4mn bl/month to ChemChina under a term deal.

BP agreed a crude supply contract on 6 November with 100,000 /d independent Hubei Jin'ao Science and Technology, which has a 46,000 b/d quota from the Chinese government to import crude. Details of the deal are unclear.

Fellow state-owned firm Sinochem also reached deals this week for a crude supply contract with Aramco, and signed a letter of intent with KPC to develop crude trading in 2019. The volumes covered in the deals are unclear.

Sinochem already takes Saudi Arab Light, Medium and Heavy grades, as well as Kuwaiti crude, for its 240,000 b/d Quanzhou refinery. But the latest agreements are not aimed at supplying Quanzhou, and some of the crude may be supplied to ChemChina, which operates around 500,000 b/d of refining capacity in China's independent sector.

Sinochem and ChemChina have long been tipped to merge, a deal that appeared to move a step closer in July after Sinochem president Ning Gaoning was appointed to the same role at ChemChina.

China's demand for energy products, fertilizer and plastics materials is likely to rise, Ning said today. Sinochem also agreed fertilizer, sulphur and plastics supply deals worth over $11bn with foreign firms this week.

China's biggest energy company state-controlled PetroChina also signed supply deals with Aramco and KPC at this week's expo. Details are unclear, but the volumes in the Aramco deal are likely in line with supplies last year. And top refiner Sinopec said it has agreed multi-billion dollar deals, without revealing more information.

3. The 7th China International Petroleum Trade Conference

On November 9, the 7th China International Petroleum Trade Conference hosted by the Ministry of Commerce and the Shanghai Municipal Government was held in Shanghai. Vice Minister of Commerce Wang Bingnan, Shanghai Vice Mayor Wu Qing,

and senior executives from the International Energy Agency, PetroChina, Sinopec, CNOOC, Sinochem, and Shanghai Futures Exchange attended the opening ceremony.

In order to further deepen the cooperation between the Chinese and foreign oil and gas industries and jointly exchange the trends and characteristics of the international oil and gas trade, the Ministry of Commerce successfully held the first oil trade conference in 2012, and it is now the seventh.

4. Policy

The Shandong Provincial Government recently launched the “Implementation Plan for Accelerating the High-Quality Development of Seven High-Energy-consuming Industries”, proposing to implement the total production control for seven high-energy- consuming industries such as steel, private refineries, electrolytic aluminum, coking, tires, fertilizers, and chlor-alkali. Among them, the private refinery's crude oil processing capacity in 2025 will be reduced from the current 130 million tons/year to 90 million tons/year, the yield of refined oil (gasoline, kerosene, diesel) is reduced to about 40%.

5. Import

(1) China has purchased 360,000 barrels per day of Iranian crude oil for a 180-day exemption.

(2) According to the statistics of the General Administration of Customs, in the first 10 months of this year, China's cumulative import of crude oil was 377 million tons, an increase of 8.1% year-on-year, with a total amount of 1.28 trillion yuan.

In 2017, China's crude oil imports exceeded 400 million tons for the first time in history. It is expected to maintain a stable and rising trend in 2018 and continue to stand above 400 million tons.

(3) China's crude imports near record high in October

China's crude imports rebounded in October to hit 9.61mn b/d, preliminary customs data show.

Imports were up by 6pc from September's 9.06mn b/d and higher by 31pc from a year earlier. October's imports were just short of the record 9.64mn b/d reached in April this year.

Total crude imports during January-October were 9.06mn b/d, up by 8.1pc from the same period last year.

China's crude demand has stayed firm in recent months, supported by stockbuilding ahead of the start-up of new refining capacity. Private-sector firms Hengli and Rongsheng are preparing to begin operations at 400,000 b/d refineries at Changxing in Liaoning province and Zhoushan in Zhejiang province respectively.

The increase in October imports also came amid uncertainty over Iranian supplies ahead of the new US sanctions on Tehran that took effect on 5 November. China has been granted a waiver to continue buying oil from Iran for the next six months but the impact on its Iranian supplies is unclear.

Crude exports were 33,000 b/d last month, down from 69,000 b/d in September, putting China's net imports at 9.57mn b/d.

China's general administration of customs (GAC) may release a detailed breakdown of the import data later this month. The GAC restarted publication of the detailed data last week for the first time since March, showing a drop in imports of Iranian crude and an increase in supplies from the US in September.