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China’s Government May Be Selling Oil, But Its Refiners Are Desperate To Buy

Refiners and analysts expect China to issue soon a new batch of crude oil import quotas for independent refiners, which is boosting the spot prices of the most popular grades with the teapots and could raise overall Chinese imports through the end of the year.  

Russia’s ESPO crude variety, a staple with the independent refiners in China, has seen its price on the spot market rise by $1 a barrel compared to August, trading sources told Bloomberg on Tuesday. Spot differentials for Brazil’s Tupi and Iracema grades have also increased in the past weeks, the traders added.

The spot prices of the grades popular with the independent Chinese refiners have increased as speculation intensified that the world’s top crude oil importer is preparing to imminently issue a new batch of oil import quotas for those refiners.  

Teapots, as independent refiners are commonly known, need government-authorized volumes to import crude, unlike the giant state-held refiners.

Independent refiners, which account for around a fifth of China’s crude oil imports, have slowed down purchases in recent months, as quotas were lowered in the latest batch, refiners went into scheduled maintenance, and the government increased its scrutiny over their business practices. 

Amid an oversupply of refined products and low refining margins, China’s government launched earlier this year a crackdown on the trade and business practices at its independent refiners. China has been increasing the oversight on the refining industry in order to crack down on the illicit fuel trade, close loopholes that some companies have been using to avoid paying fuel consumption taxes, and curb the fuel oversupply, part of which is the result of tax avoidance or tax evasion.

Analysts now expect a fourth batch of import quotas to be issued as early as this month or next, which would push up purchases from teapots.

Chinese refiners are once again boosting their purchases after several months of slowdowns in spot market, while China’s oil imports rebounded in August, rising by 8 percent compared to July.  


By Charles Kennedy for Oilprice.com

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