China crude imports may fall 3% on quota probe: Reuters

London (Quantum Commodity Intelligence) – State-run Chinese refiner PetroChina has been told to stop trading crude oil import quotas with independent refineries in a bid to slow down fuel production and protect refining margins, in a move which may lead to a 3% drop in crude oil imports, according to anonymous sources quoted by Reuters.

Chinese authorities made the order to its PetroChina Fuel Oil business unit following increased scrutiny of the usage of crude import quotas due to falling refining profits and an increase in emissions, said the sources.

If Petrochina cuts off quota supply to the country's independent 'teapot' refineries they will be forced to import straight run fuel oil as feedstock instead and crude imports will fall by 12 million to 16 million mt per year, or 240,000 to 320,000 barrels per day, Reuters said, citing the sources.

"The government is taking a lot more seriously carbon emissions this year, and sees large crude oil imports and large refined fuel exports as something unsustainable," said an official.

Teapot refiners which are using more crude than their own quotas allow will be reigned in, added the official.

PetroChina Fuel Oil has been utilising a legacy processing agreement that allows it to pay teapot refiners to make refined products and buy them back at a fixed price.

However, the company often just let independent refiners use import quotas or sell imported crude oil directly to them.

"(The investigation) officially ends the years-long partnership between the company and teapots," said a second official.

A PetroChina representative said they were not aware of the situation and were unable to comment.