Crude oil imports by China's independent refineries, or teapots, fell to the lowest in six months, at 2.76 million bpd last month, down by almost a fifth from the record-high January import rates, an S&P Global Platts survey showed.
While imports normally decline in February, the size of the monthly drop was the result of the coronavirus outbreak, which has driven oil demand in China into the ground--and when it will begin recovering remains unclear.
The situation of Chinese refiners is quite unenviable right now. A fuel glut caused by excessive refining capacity last year pushed their profits down by as much as 42 percent as total refining capacity in the country reached 17.2 million bpd at the end of 2019.
Now, amid the outbreak and the consequent slump in demand for refinery products, China's teapots are also facing financial problems as banks start refusing to extend their credit lines for fear they might not be able to cover their obligations if the effects of the outbreak-cased crisis turn out to be too severe for some refiners to survive.
Meanwhile, the teapots are also cutting their run rates and closing whole refineries. According to the S&P Global Platts survey, as many as 15 independent refineries in the teapot province of Shandong were shut, while those that kept operating cut their run rates considerably, to an average of just 36 percent.
One of the new refiners that came on stream last year, adding to the overcapacity, the 400,000-bpd facility of Hengli Petroleum in Dalian, cut run rates from 108 percent to 90 percent last month.
There is some good news, however, according to unnamed sources who spoke to S&P Global Platts. These source said they expected demand to rebound this month and imports to pick up. If this happens, it would be a much needed positive signal for oil prices.
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. More