Higher oil prices and a fuel glut in Asia are depressing refining margins, likely forcing China's independent refiners to scale down crude oil processing rates in the third quarter, traders and analysts told Bloomberg.
Earlier this year, at the peak lockdown in other countries, China's independent refiners, the so-called 'teapots', gobbled up crude oil at ultra-low prices when they plunged in March and April.
Chinese refiners boosted their run rates by 11 percent in April compared to March, as China began to emerge from the months-long lockdown.
During the peak Chinese lockdown in February, refinery processing rates had slumped to their lowest level in six years.
In the following months, refiners ramped up production and capacity utilization as demand began to recover.
But now, oil at $40 - double from April's lows - is weighing on refining margins, and teapots are widely expected to cut refinery runs. Industry consultant FGE told Bloomberg it sees the private refiners reducing their processing rates to 1.9 million bpd-2 million bpd this month and next, compared to 2.3 million bpd in May.
If China's private refiners - which account for over one-fifth of the Chinese crude processing capacity - were to also reduce purchases of crude oil, now that it is at $40 a barrel, the oil market could lose one of the upward trend drivers of recent months, when demand was severely depressed everywhere but in China.
Moreover, China's crude oil buying spree from April and May is now turning into congestions at Chinese ports, where storage capacity is thin.
According to data from Refinitiv Eikon, reported by Reuters, half of the 80 million barrels waiting to discharge at the Chinese ports last week were at the port of Qingdao in the Shandong province, home to most of China's independent refiners.
As early as in mid-June, signs began to emerge that there was growing tanker congestion in the waters around Chinese oil ports.
By Tsvetana Paraskova for Oilrpice.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