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China’s independent refiners will probably increase their intake of foreign oil by 23.9 percent to 2.1 million bpd this month, a survey by S&P Global Platts has shown, thanks to high demand for fuels.
The total for the month, according to the survey, will come in at 9 million tons, which is up from 7.26 million tons for September and will also be driven by falling inventories that need filling up and the nearing end of the year: teapot refiners, as they are commonly called, have to use their import quotas before the new year starts.
S&P Global Platts estimated the biggest increase in shipments of foreign oil into China would be registered at Qingdao port: October cargoes of crude oil arriving at the port are seen 85 percent higher than September cargoes, at 3.9 million tons.
Earlier this year, independent refiners in China started reducing their imports as maintenance season began and as they tackled a regulatory blow from Beijing that curbed their tax incentives that drove higher profit margins and consequently higher demand for feedstock. Yet once refineries started raising run rates again in July, demand picked up as well.
In more good news for exporters of crude to China, earlier this month, Beijing announced it will raise 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.
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.
What’s perhaps worrying for the longer term is the likelihood that China will saddle itself with excessive refining capacity while demand growth slows down. In September, Reuters reported the country’s surplus refining capacity would reach 136 million tons annually in 2020, according to data from state giant CNOOC.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.