Yanchang Petroleum cuts crude output

Low crude prices and a global supply glut are forcing more Chinese oil companies to stop drilling and shut down fields.

After China National Petroleum Corp and Sinopec Group, the nation's top two crude producers and energy giants, announced output reductions last week, the country's fourth-biggest oil producer Shaanxi Yanchang Petroleum Group Co has now followed suit, by cutting output by 200,000 metric tons this year.

A senior Yanchang official, who declined to be named, said the cutback is being made to improve the firm's operational structure, as well as reduce oil stocks.

"We will close some drilling wells with low efficiency to raise the whole company's performance this year," he said.

The official denied, however, there would be any staff layoffs as a result.

Li Yan, a crude oil analyst at consultancy Shandong Longzhong Information Technology Co, said with the global crude prices struggling to top $30 a barrel, Chinese oil producers whose production costs are higher than foreign counterparts "have no option but to cut production to make it through".

Despite the benchmark West Texas Intermediate hitting a three-week high on Monday, mostly due to the declining US rig count, a report from the International Energy Agency has forecast US oil output to shrink by 600,000 barrels a day this year.

The agency also said domestic production will decline by another 200,000 barrels in 2017.

Baker Hughes Inc, an oilfield services company, said its number of active US rigs fell by 28 to 413 during the week ending Feb 12, its lowest level since December 2009.

"No doubt that report and the rig count fall helped crude prices to rise," Li said.

"However, the current rebound will not last long."

He said the ongoing glut in global supplies is still driving prices low, adding that stocks had already passed a warning line at the beginning of 2015, and continue to grow slowly.

At the end of January, US crude stocks reached 500 million barrels, their highest level in 80 years.