China has slashed by 35 percent the crude import quotas for its independent refiners in the second batch of oil buying authorizations this year, suggesting that Chinese teapots will import much lower volumes in the second half of the year compared to last year and to recent months.
The second batch of import quotas by Chinese authorities is 35 percent lower than the same batch last year, and some independent refiners that had previously been allowed to buy foreign crude are cut off from this year's second batch, Reuters reported on Monday, citing a government document it had seen.
Since 2015, when China began allowing private refiners to import crude oil, the authorities have regulated with quotas how much each refiner can buy.
Independent refiners, the so-called teapots, account for around a fourth of China's refining capacity. Unlike independent refiners, which are issued semi-annual quotas for crude imports, the state refiners' imports are not capped by quotas.
Amid an oversupply of refined products and low refining margins, China's government launched 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.
In May, the Chinese authorities said they would impose a consumption tax on imported light cycle oil (LCO), mixed aromatics, and diluted bitumen as of June 12.
Back in April, China stepped up pressure on independent refiners to uproot illegal tax practices and check if outdated facilities have been closed as required, Bloomberg reported, quoting sources with knowledge of the plans.
The slashing of the second-batch 2021 quotas suggests that China intends to reform the practices at the private refining sector, local consultancy SCI99 said in a note, as carried by Bloomberg.
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. More