China’s independent refiners

China’s independent ‘teapot’ refiners have wreaked havoc on the global oil market since they began receiving quotas to import and run crude oil in July 2015. Their crude imports, reaching over 1 mb/d, have accounted for the vast majority of China’s incremental buying in 2016, tapping into a wide variety of suppliers and tweaking crude flows to China.

With access to new sources of feedstock, the independent refiners increased throughput by 0.65 mb/d y/y in 2016. They also challenged the state-owned majors’ monopoly, especially in the domestic products market, thanks to support from the local government and, at times, creative tax practices, while the state-owned majors have refused to cut runs meaningfully. This has exacerbated China’s product glut and generated record-high flows of product exports, weighing on Asian margins.

This research project analyses the origins of China’s teapots and assesses their future development: With oil prices gradually rising in 2017, and the state-owned majors lobbying the government to look into the teapots’ operating practices, the political and economic odds seem stacked against the independents. But the teapots have weathered worse storms, and their crude buying and throughput levels are unlikely to fall. They may, however, need to adapt once more to the changing political wind.

By: Michal Meidan

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