China reduces crude oil import quotas for private refineries

China has issued 35.24 million tonnes of crude oil import quotas to non-state refiners in a second batch of allowances for 2021, reported Reuters on Tuesday.

This is a 35 percent decrease from the same slot last year. According to the newswire, a total of 39 companies, led by two large private refiners -Zhejiang Petrochemical Co (ZPC) and Hengli Petrochemical - will receive quotas issued in the second batch for 2021. ZPC and Hengli will each receive 3 million tonnes.

These refiners are likely to draw on commercial inventories in China while processing fuel oil that they had bought earlier, said Liu Yuntao, China analyst at consultancy Energy Aspects as quoted by Reuters. The impact on refiners' run rates will become more evident in the fourth quarter as they gradually use up oil in storage, Liu added.

These changes in the quotas and newly imposed taxes might reduce independent refiners' crude imports and their fuel output within the second half of this year.

This "will impact oil imports by teapots but not the overall crude imports or refinery operations as we expect NOCs (national oil companies) to make up for the shortfalls from teapots," SIA Energy analyst Seng Yick Tee told Reuters.

“Teapot” refiners are independent firms that make up to fifth of crude imports within China’s total oil imports. 

China has been working to reduce emissions and consolidate an already inflated refining industry; hence, this crackdown on trading of these quotas. Previously, the Chinese authorities have told PetroChina to stop trading off crude oil with local refineries.