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China is raising by 42 percent the oil import quota for its non-state refiners—most of which are the independent refiners—for 2019 as new refinery capacity is planned to enter into operation next year.
China is allocating a total of up to 202 million tons, or 4.06 million bpd, of import quota to non-state refineries for next year, S&P Global Platts reported on Monday, citing a weekend communication by the Chinese Commerce Ministry. Companies have until November 10 to apply, and those who haven’t imported crude oil in 2018 will not be allocated quotas for next year, the ministry noted.
While state-held giants such as Sinopec, PetroChina, CNOOC, and Sinochem don’t need government approval of quota allocations, all others, including the independent refiners—the so-called teapots—need to apply and obtain the consent to import crude oil.
Hengli Petrochemical and Zhejiang Petrochemical are expected to start up major oil refineries next year, and this is the main reason why China is boosting the non-state oil import quota, according to analysts.
The two new refineries are expected to buy crude oil from Saudi Arabia and Oman in the Middle East, as well as from Brazil, instead of from nearby sources of oil in the Far East and Southeast Asia, market sources told Platts.
The quotas for 2019 look more than enough, because “the sector is unlikely to witness much incremental demand from end-users, other than Hengli Petrochemical, Zhejiang Petrochemical and a few small independent refiners in Shandong,” an analyst based in Beijing told S&P Global Platts.
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Following four consecutive months of declining oil imports, China’s independent refiners boosted crude oil imports in August by 40 percent from July, as many returned from maintenance to prepare for winter fuel demand amid recovering refining margins, according to data by Thomson Reuters Oil Research and Forecasts.
Under the stricter tax regulations and reporting mechanisms effective March 1, the teapots can no longer avoid paying consumption taxes on refined oil product sales—as they have over the past three years. In other words, their profit bonanza is coming to an end. Independent refiners have started losing money on refining, prompting a cut in utilization rates and closures for maintenance in the spring and early summer in order to reduce exposure to unfavorable market conditions.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.