Chinese oil major Sinopec to shut fields as oil price recovery hopes dim

China Petroleum & Chemical (Sinopec) has shut four oil fields after hopes for a sustained rebound in oil prices were dashed by a disappointing agreement between Saudi Arabia and Russia on supply that saw oil prices give back much of their recent gains.

Sinopec, China’s second-largest oil producer, will temporarily shut four of the worst-performing production sites at its mainstay, 70-site Shengli oilfield in Shandong province – a rare move since the start of production at the field more than half a century ago – according to a report on a company-run news web site on Wednesday.

“At current oil prices, the shutdown could save 130 million yuan (HK$155 million) of costs and reduce losses by 200 million yuan,” it said, adding low oil prices had reduced the field’s economic reserves and it could only survive by shedding high-cost production capacity.

Chinese oil and gas producers had been hoping for a rally in oil prices so they could escape the need for painful cost reductions and business restructuring.

Saudi Arabia and Russia, two of the world’s largest oil producers and exporters, agreed on Tuesday to freeze their output at January’s near-record-high levels, but said the pact will only stick if other major producer nations join in.

So far Qatar and Venezuela have pledged to join, but Iraq and Iran, the second- and third-largest producers in the Opec cartel, have not.