Rising Oil Prices Threaten China’s Independent Refiners

As international oil prices continue to surge, Chinese independent refiners may be forced to scale back their production rates, according to an Energy Aspects analyst. The analyst cited the potential impact of dwindling supplies from major exporters, particularly Venezuela and Iran, due to U.S. foreign policy decisions. These independent refiners, often referred to as "teapots," are more vulnerable to fluctuations in the oil market as their refining margins are thinner than those of state-owned major players.

In July, their margins had already dipped to breakeven from around $10 per barrel earlier in the month, according to Jianan Sun.

In August, China imported 37.93 million tons of crude oil, equivalent to 8.93 million barrels per day, marking a 6.2% increase from the previous month. However, this figure still represented a 23.4% decrease compared to August 2022. Despite the recent improvement, the August import level was still 23.4% lower than the same month a year ago.

This trend began in June when China slashed its total crude oil imports to a decade low, following three months of low import levels due to high prices and restricted supply from the Middle East.

The reduction in imports has impacted refinery output, contributing to a global fuel shortage that is expected to worsen as conflict in the Middle East persists. As Venezuelan and Iranian crude become scarce, Chinese refiners may turn to Russian crude in the coming weeks. However, Russian crude prices are also on the rise, creating potential challenges for demand.