China’s Teapot Refiners Boost Crude Buying After New Import Quotas

By Michael Kern of Oilprice.com

Helped by the newly-issued crude import quotas, China’s independent refiners are buying sanctioned Iranian crude again and raising their processing rates, making room for Iran’s oil to move out of floating and bonded storage and potentially easing the year-end glut on the market. 

The independent refiners in China’s Shandong province, the so-called teapots, have been buying cheap Iranian oil from onshore storage in China, including bonded storage, since the Chinese authorities issued a fresh batch of import quotas last week. 

These quotas are important for China’s purchases and storage of crude as all refiners except the five big state-owned giants need to be allocated quotas in order to import crude. 

The teapots are now using their quotas to buy Iranian crude from bonded storage and boost processing rates, traders and analysts told Reuters on Friday. 

The independent refiners exhausted their previous quotas as early as in October and were waiting for a new issuance at the end of the year. Authorities issued quotas of a total volume that was higher compared to last year’s last batch. 

“As for the effect on sanctioned flows, the new quotas will sustain — rather than lift — China’s sanctioned crude inflows,” Emma Li, Lead Market Analyst at Vortexa, said on Thursday. 

Despite tightening sanctions against Iran and Russia, and the U.S. now targeting China’s hubs for Iranian oil imports, shipments into the Shandong province have remained robust this year, Li noted. 

Part of the volumes have been accumulating in onshore storage, including in bonded storage, instead of going into processing immediately. 

“This means new quotas will partly be used to draw down inventories rather than drive incremental seaborne imports,” Li said. 

The new quotas have already spurred higher processing rates, with utilization rates estimated to have jumped to over 60% compared with about 50% of the past few months when the teapots were out of quotas. 

Due to the more active independent refiners, analysts at Energy Aspects have raised their estimate of China’s crude processing volumes in December by about 150,000 barrels per day (bpd), senior analyst Sun Jianan told Reuters.