China’s independent refiners could be heading for a difficult period as rising international oil prices and tightening crude supplies squeeze their already-thin profit margins. The so-called “teapot” refiners, which operate independently from China’s state-owned oil giants, are particularly vulnerable because they have less room to absorb sudden increases in crude prices. Analysts say some of these refiners may soon be forced to reduce their processing rates as the cost of securing crude continues to climb.
The pressure comes as supplies from major exporters, including Venezuela and Iran, become increasingly limited amid U.S. foreign policy measures. According to Energy Aspects analyst Jianan Sun, China’s independent refiners are unlikely to afford a complete shift toward more expensive mainstream crude grades. Their refining margins have already fallen sharply to around breakeven, compared with about $10 per barrel in early July, leaving operators with little cushion as the oil market becomes more expensive.
Despite the supply challenges, China’s crude oil imports showed signs of recovery in August. Official customs data revealed that the country imported 37.93 million tonnes of crude, equivalent to about 8.93 million barrels per day, representing a 6.2% increase from July. However, imports remained 23.4% below the level recorded in August last year, although the latest figure was significantly higher than the decade-low 7.1 million barrels per day recorded in June.
China’s weak crude imports earlier this year were linked to high oil prices and tighter supplies from the Middle East, contributing to lower refinery activity. That decline has played a role in the broader global fuel squeeze, which could become more severe if ongoing conflict in the Middle East continues to push oil prices higher. For independent Chinese refiners, higher crude costs could make it increasingly difficult to maintain production without taking a hit to profitability.
With Venezuelan and Iranian crude supplies largely unavailable, Chinese refiners are expected to turn increasingly to Russian oil to fill the gap. However, Russian crude prices are also rising alongside other international grades, creating another challenge for buyers. If prices continue climbing, China’s independent refiners may have little choice but to cut processing rates, potentially adding further pressure to an already-tight global oil and fuel market.
source: oilprice
