China slashes crude oil import quotas for teapot refiners, down 35% y-on-y

London (Quantum Commodity Intelligence) – The Chinese government has slashed crude import quotas awarded to independent refiners, compared to the same tranche awarded last year, reported Bloomberg News citing refining officials.

Privately-owned refineries were issued with a combined 35.24 million mt of crude oil import quotas in the second batch of 2021 quotas, about 35% less than last year's 53.88 million mt, signalling a further central government crackdown on the independent refining sector.

The sharp reduction in import quotas comes as China continues to roll out reforms for the private sector, in a bid to regulate oil flows and protect refining margins, plus prevent smuggling and tax evasion.

Earlier this month China's state-owned refiner PetroChina was ordered to stop trading crude oil import quotas with independent refineries, which is expected to impact crude imports for the second half of the year.

The crackdown on crude imports has already seen Chinese 'teapot' refiners scramble for alternative feedstocks, particularly straight-run fuel oil, with at least 5 million barrels of straight-run said to have been snapped up this month.

Chinese teapots were a major source of straight-run fuel demand until five years ago when the crude quota system was rolled out. Traders said that cargoes documented as straight-run fuel oil were, however, regularly used as a method of importing additional crude oil.

Meanwhile, the Beijing government has also introduced hefty tariffs on the import of bitumen and light cycle oil, believed to be aimed primarily at independent refiners.