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Higher output at state-held refiners boosted China’s oil refining production by 11.6 percent annually in July, but the output was slightly down compared to June as small independent refiners continue to struggle under higher taxes and fading margins.
Last month, Chinese refinery throughput stood at 50.95 million tons, equal to 11.95 million bpd, as per data from the National Bureau of Statistics, carried by Reuters. The July production was 11.6 percent higher than in July 2017, but lower than the 12.11 million bpd refinery throughput in June this year.
China’s refinery production increased by 9.2 percent annually to average 12.07 million bpd between January and July, according to the official data.
State refiners have been benefiting in recent months from weakening competition from independent refiners, the so-called ‘teapots’, who now face stricter tax controls and regulations that have started to erode their refining and profit margins.
Under the stricter tax regulations and reporting mechanisms effective March 1, the teapots now can’t avoid paying consumption tax on refined oil product sales—as they did in the past three years—and their profit bonanza is coming to an end.
Despite ample government-approved crude import quotas, independent refiners are now losing money on refining, cutting utilization rates, and are closing for maintenance to cut exposure to the unfavorable market conditions. With higher oil prices this year and the taxes they now can’t avoid paying, the teapots are expected to reduce their imports, threatening China’s oil demand growth, and ultimately, global oil demand growth.
Related: Global Oil Supply Could Become ‘’Very Challenging’’
China’s crude oil imports in July rose for the first time in three months, but were still at their third lowest monthly level so far this year due to the weakened crude demand from the teapots.
The Chinese domestic crude oil production, on the other hand, fell last month by 2.6 percent compared to July 2017, to 3.73 million bpd. This was the lowest daily production in China since at least June 2011, according to the statistics data.
Last week, state-held giants CNOOC and CNPC said that they would look to boost domestic oil and gas exploration and production, in line with Chinese President Xi Jinping’s instruction to increase national energy security.
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.