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China’s Teapots Agree To Play Ball With State-Run Giants

A group that represents most of the independent oil refiners in China has issued a statement pledging the members’ full compliance with government regulation governing how these independents operate, so that they don’t trigger complaints from the state-owned giants, Reuters has reported after seeing the statement.

The statement comes after Beijing announced it would stop accepting applications by refiners to import crude oil beginning May 5. It also began stricter checks on the teapots’ tax practices.

The independent refiners, commonly called teapots, have been instrumental for China’s crude oil demand growth during the oil prices crisis, but have also undermined the dominance of the state-owned companies.

Among the requirements the teapots have promised to obey to the letter is the stipulation that no amount of imported crude—for which every teapot has a government-issued quota—shall be re-exported.

There are currently 28 independent refiners operating in China, with their combined quotas totaling 1.9 million bpd. Their imports between January and March 2017 represented 18 percent of the country’s total crude imports.

In April, however, teapots slowed down, cutting imports by as much as a fifth from March, as they fulfilled their quotas and as refinery maintenance season went into full swing. The decline will most likely continue, as high inventories, changing import quota policies, and stricter tax scrutiny are squeezing their refining margins—a move that could raise concerns over China’s oil demand growth.

Related: Oil Markets On Edge As Arab States Cut Ties With Qatar

In the province of Shandong, where many independent refiners are based, crude stocks at major ports were at a 13-month high in late May because of maintenance at independent refineries and high import volumes in the previous months, S&P Global Platts reported at the time.

Now that the OPEC output cut extension agreement has failed to make any sort of splash on oil markets, the teapots may find themselves in a bad place: they must sure have an appetite for higher imports, but not the opportunity to increase the amounts of crude they are buying.

By Irina Slav for Oilprice.com

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