China’s Independent Refiners Look To Boost Output

Authorities in the province home to most of China’s independent refiners have asked the central government to allocate additional quotas for fuel oil imports as the refiners look to boost processing this month and next, but lack enough crude oil import quotas, traders and analysts have told Reuters.

The independent refiners, the so-called teapots based in the Chinese coastal province of Shandong, have received lower quotas to import crude oil this year.

So now they are seeking, through the provincial government of Shandong, to be allowed extra fuel oil supplies, which are cheap and can be processed into diesel and gasoline.

The Shandong government has asked for an additional 3 million metric tons of fuel oil quotas for the remainder of this year, according to Reuters’ sources.

China issued the last batch of crude oil import quotas for this year early last month, but independent refiners were allocated smaller quotas. The teapots have also exhausted most of the previously allowed crude import quotas for the year.

With limited crude import quotas and falling refining margins, Chinese refiners have reduced utilization rates in recent weeks, down from the record-high refinery throughput of 15.23 million barrels per day (bpd) in August. That record was smashed on the following month when China’s refinery throughput hit 15.48 million bpd ahead of anticipated strong demand for a week-long holiday in late September and early October.

In recent weeks, however, weakening margins and limited fuel export quotas have had refiners scale back utilization rates, analysts told Reuters earlier this week.

“Margins are almost disappearing as we're processing higher-priced crude while demand for refined fuel is weakening,” an anonymous official at a refinery of state-owned refining giant Sinopec told Reuters.

Now if the Chinese government grants fuel oil import quotas to China’s independent refiners, they could boost processing using lower-priced fuel oil, including from Russia.

By Tsvetana Paraskova for Oilprice.com

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