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Following four consecutive months of declining oil imports, China’s independent refiners boosted crude oil imports in August by 40 percent from July, as many returned from maintenance to prepare for winter fuel demand amid recovering refining margins, according to data by Thomson Reuters Oil Research and Forecasts.
Crude oil imports for Chinese independent refiners—the so-called teapots—have averaged 1.4 million bpd so far in August, up by 40 percent compared to July and up by 10 percent from August last year, Thomson Reuters Oil Research reported.
For now, this rebound in imports could ease concerns that slumping teapot imports, which represent around one-fifth of China’s total crude oil imports—could affect oil demand in the world’s biggest oil-importing country.
Under the stricter tax regulations and reporting mechanisms effective March 1, the teapots can no longer avoid paying consumption taxes on refined oil product sales—as they have over the past three years. In other words, their profit bonanza is coming to an end.
Despite ample government-approved crude import quotas, independent refiners have started losing money on refining, prompting a cut in utilization rates and closures for maintenance in order to reduce exposure to unfavorable market conditions.
With higher oil prices this year and the taxes, the teapots are expected to reduce their imports, threatening China’s oil demand growth, and ultimately, global oil demand growth.
Now many teapots are back from maintenance, and during the extended period of shutdowns the Chinese diesel and gasoline glut was erased, boosting fuel prices and improving refining margins.
The higher oil product prices encouraged more independent refiners to come back from maintenance, a manager at a Dongying-based teapot refiner told Reuters, noting that the refiner he works with finally managed to book a small profit in August.
Analysts who spoke to Reuters expect crude oil demand next month to further firm up, as the teapots will be preparing to boost fuel production in Q4.
However, executives warn that teapot profits--if any--are still looking slim this year, and some smaller, poorly-managed independent refiners might go out of business, while the larger players are expected to survive.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
China’s oil demand is growing by 4% this year and is projected to top 10 million barrels a day (mbd) buoyed by an economic growth averaging 6.7% this year.
Furthermore, China’s imports of Iranian crude could be projected to increase significantly this year if the escalation of the trade war between China and the US continues. As a retaliation against US tariffs, China could easily drop any imports of US oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London