China's demand for oil is falling sharply and inventories are surging as the global economic downturn starts to make itself felt, the country's largest integrated oil company China National Petroleum Corporation said Monday.

     CNPC's production has been affected "adversely" as the international financial crisis intensifies and takes its toll on China, according to the statement on the company's website.

     "The impact has become even more obvious since September," the statement
said, citing CNPC president Jiang Jiemin, who was speaking at a company video
conference on November 14.

     "It manifests itself in tougher sales due to sharply contracting
consumption, difficult production planning because of surging crude oil and
oil products inventories, and slumping prices of oil products and
petrochemicals," he said.

     Evidence is mounting that the downturn is beginning to impact China's
exports, a key growth driver for the world's fourth largest economy. The trade
surplus for the first nine months of the year reached $180.9 billion, down
2.6% year-on-year, according to customs data. Growth in foreign direct
investment has moderated on the back of the strength in Chinese currency
Renminbi Yuan versus the US dollar, uncertain global economic outlook and
credit squeeze. The Chinese economy expanded by 9% in the third quarter, the
lowest growth figure since the second quarter of 2003 when the country was hit
by the SARS epidemic.

     CNPC's business arm PetroChina and another Chinese state-controlled
integrated oil group Sinopec Corporation have already planned to cut crude
throughput of their key refineries in China in November because of high
inventories of gasoil and gasoline, according to an industry survey conducted
by Platts last week.

     PetroChina's five major refineries in the north and northeast
of China were scheduled to process 4.08 million mt crude in November, down 4%
from October's 4.23 million mt. The five refineries have a total designed
crude processing capacity of 54 million mt/year, accounting for around 93%
of the company's total.

     Sinopec's 10 major refineries in China planned to cut crude runs by 20%
from October's 8.92 million mt (178,400 b/d) to 7.12 million mt in November.
The 10 refineries surveyed have a total designed crude processing capacity of
120.5 million mt/year, representing roughly 68% of Sinopec's total capacity of
176.1 million mt/year.

     Gasoline and gasoil inventories held by the two state refiners nationwide
hit yearly highs of 4.2 million mt and 6.4 million mt respectively, according
to the state media Xinhua News Agency.

(Platts, Nov 17, 2008)