China’s independent oil refiners, widely known as “teapots,” could be preparing to make a major return to the Iranian crude market as their oil stockpiles continue to shrink. Refiners in Shandong, the heartland of China’s independent refining industry, have reportedly seen their crude reserves fall sharply, creating pressure to replenish supplies as August gets underway.
For much of the six-month Middle East conflict, China’s teapot refiners have taken a cautious approach to crude purchases. Instead of aggressively importing oil at elevated international prices, many relied on existing reserves and reduced their buying activity. China was able to take this approach because it had built up an enormous supply cushion, with estimates suggesting that more than 1.3 billion barrels were held across commercial and strategic reserves.
That cushion, however, now appears to be getting thinner. Data from Energy Aspects cited by Bloomberg estimated that Shandong’s crude stockpiles fell to around 360 million barrels at the end of July, their lowest level in eight months. The region reportedly used about 35 million barrels in July alone, marking the largest monthly draw since Energy Aspects began tracking the data in 2016. The sharp decline could encourage independent refiners to return to the market for fresh supplies.
Iranian crude could be among the biggest beneficiaries of this renewed demand. Millions of barrels of Iranian oil reportedly moved through the Strait of Hormuz during a window between mid-June and early July when the U.S. blockade aimed at restricting Iranian exports was lifted. With some of that crude positioned for delivery to Asian buyers, Chinese independent refiners may have an opportunity to increase purchases as they look to rebuild depleted inventories.
China’s overall crude imports also showed signs of recovery in July, rising 22% from June to an average of 8.45 million barrels per day, according to customs data. The development is significant for the global oil market because China’s huge reserves and buying power have helped limit upward pressure on crude prices during the Middle East turmoil. But as Chinese refiners return to the international market, analysts warn that the world could face a new source of demand—and that could prove challenging for traders betting on lower oil prices.
source: oilprice
