China has allowed some independent refiners to reduce processing rates amid mounting losses as Chinese crude and fuel stockpiles remain comfortably high despite the Middle East crisis.
In the early weeks of the Iran war and the inability of Middle Eastern exporters to ship crude through the Strait of Hormuz, Chinese authorities directed the private refiners, the so-called teapots, to maintain high levels of gasoline and diesel supply, even at a loss, or risk their crude import quotas slashed if they reduce run rates.
Two months after this directive, China’s state planner, the National Development and Reform Commission, has now issued notices to some loss-making independent refiners that they can reduce fuel output from June to no lower than 80% of last year’s monthly average, trade sources and consultancies have told Reuters.
Last month, the private refiners asked the central government for permission to lower run rates as high crude prices and consequently, high input costs, are denting profit margins and deepening losses.
The ‘at-all-costs’ refinery output directive was the result of China’s policy to preserve domestic fuel supply amid the worst oil supply disruption in history.
But as inventories are sufficient enough, also due to slashed exports, the Chinese authorities now seem to be inclined to relax the policy, at least for some of the struggling private refiners.
China’s gasoline and diesel exports remain sufficient amid the export curbs that have slashed overseas shipments in recent months.
In addition, gasoline consumption in China has dropped since the Iran war upended the global oil markets, and is on track to decline more than previously expected this year, due to the higher prices and the continued push toward electric vehicles.
The increase in gasoline prices, despite government interventions in the sector, is discouraging driving of conventional cars with internal combustion engines, especially in many cities where EVs are more convenient and cheaper ways to move around.
By Charles Kennedy for Oilprice.com
More Top Reads From Oilprice.com
- Pakistan Inflation Accelerates to 11.7% on Oil and Gas Import Shock
- Rystad: U.S.-Iran Re-Escalation Could Drive Oil To $180 By August
- BP Starts Production at Trillion-Cubic-Foot Gas Prize In Azerbaijan
