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China Relaxes Rules For Teapot Refiners

In a rather unexpected move, China raised the crude oil import quotas for “non state trade”—basically for independent refiners—by 55 percent for 2018 compared to 2017, signaling that it could be relaxing the rules for the so-called teapots and giving them more share of China’s oil imports.

China’s Ministry of Commerce not only issued larger quotas, but made the announcement earlier than expected. Non-state companies now can begin applying for 2018 crude oil import quotas for a total of 142.42 million tons, or some 2.85 million bpd, up from 91.73 million tons in total quotas for this year.

According to China’s official news agency Xinhua, the volume of the quotas for 2018 is equivalent to around 37 percent of China’s crude imports for 2016. Applicants for next year’s quotas should provide records of imports from the past two years or qualifications to process imported crude oil.

The quotas will be allocated in batches throughout 2018 and the volumes could be further adjusted, according to the Chinese Ministry of Commerce.

The quotas for 2017 had been cut by around 17 percent compared to 2016, because teapots had under-used their earlier permits.

For 2018, higher quotas are expected to boost Chinese independents’ purchases of Russian EPSO blend and of Angolan crude oil, sources at independent refiners told Reuters.

Related: Kurdistan Ready To Hand Over Oil For 17% Of Iraqi Budget

More imports of EPSO could further solidify Russia’s top crude supplier spot to China. For a seventh consecutive month in September, Russia held its top position as the biggest supplier of crude oil to China, ahead of Angola, with OPEC’s biggest exporter Saudi Arabia third.

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Considering only teapots’ crude imports, Angola replaced Russia in October to become the biggest supplier to the Chinese independents, according to a monthly survey by S&P Global Platts. The U.S. made the top ten for the first time, the survey also showed. Between January and October, Russia was the biggest supplier to China’s independent refiners who especially favor the ESPO blend because of its high yield of gasoil, and due to the relatively shorter tanker voyage between China and Russia, Platts says.

By Tsvetana Paraskova for Oilprice.com

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