Higher oil prices, compared to April, and a fuel glut in Asia are depressing refining margins, likely forcing China’s independent refiners to scale down crude oil processing rates in the third quarter, traders and analysts told Bloomberg.
Earlier this year, at the peak lockdown in other countries, China’s independent refiners, the so-called ‘teapots’, gobbled up crude oil at ultra-low prices when they plunged in March and April.
Chinese refiners boosted their run rates by 11% in April compared to March, as China began to emerge from the months-long lockdown.
During the peak Chinese lockdown in February, refinery processing rates had slumped to their lowest level in six years.
In the following months, refiners ramped up production and capacity utilization as demand began to recover.
But now, oil at $40 – double from April’s lows – is weighing on refining margins, and teapots are widely expected to cut refinery runs. Industry consultant FGE told Bloomberg it sees the private refiners reducing their processing rates to 1.9 million barrels per day-2 million bpd this month and next, compared to 2.3 million bpd in May.
If China’s private refiners – which account for over one-fifth of the Chinese crude processing capacity – were to also reduce purchases of crude oil, now that it is at $40 a barrel, the oil market could lose one of the upward trend drivers of recent months, when demand was severely depressed everywhere but in China.
