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China’s Refiners Love The Saudi-Russia Oil Price War

China’s independent refiners, which buy a fifth of total Chinese crude oil imports, are increasing their run rates and buying ultra-cheap crude, taking advantage of the Saudi-Russia price war, Reuters reported on Wednesday, quoting executives and traders.

Economic activity in China begins to slowly recover and lockdowns in some areas are being eased as the number of China’s new daily cases of coronavirus infections has been declining over the past two weeks.

At one point in February, Chinese oil refiners had cut their daily run rates to around 10 million bpd—the lowest level since 2014, due to the depressed fuel demand amid strict travel restrictions. Now the easing of the quarantine zones and the recovery of more industrial activities are creating some demand for fuel, while the oil price crash with cheap crude is further helping refining margins.  

While the biggest state-held Chinese refiners continue to be cautious about crude purchases and to keep run rates lower than usual, especially because of depressed jet fuel demand, the independent refiners – commonly known as teapots – are not only raising their refinery run rates from the very low levels seen in February. They are also on the market for ordering crude cargoes for arrival for May and June at much lower prices, and they have the former OPEC+ group allies Saudi Arabia and Russia to thank for the cheapest crude in years.

The spot premium for May loadings of Russia’s ESPO crude, one of the Chinese teapots’ favorite grades, plunged this week to its lowest level since Russia started exporting this type of crude in 2010, according to Reuters estimates.

After the collapse of the OPEC+ agreement last week, Saudi Arabia slashed its official selling prices to all regions and is getting ready to flood the market with an extra 2.6 million bpd next month. Russia has the ability to boost its oil production by 200,000 bpd to 300,000 bpd in the short term, with a potential for up to a total increase of 500,000 bpd, Russian Energy Minister Alexander Novak said on Tuesday.

By Tsvetana Paraskova for Oilprice.com

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