China Teapots Make Rare Murban Oil Purchases

At least two independent Chinese refiners have made a rare foray into the broader international crude market, snapping up cargoes of Middle Eastern oil for delivery next month.

Fuhai Group Co. and Shaanxi Yanchang Petroleum Group each purchased around 1 million barrels of Abu Dhabi’s Murban crude, according to people familiar with the matter who asked not to be identified because the information is private. The trades were handled by international and Chinese firms, they added.

The current trading cycle is for crude loaded in July, and any cargoes bought now for June is considered prompt. Traders were mixed on the reason behind the purchase, with some pointing to a supply overhang in the Middle Eastern market – meaning cheaper barrels – and others flagging costlier fuel oil.

The two refiners didn’t respond to a request for comment.

China’s smaller processors, known as teapots, typically opt for discounted crude from Iran and Russia, and often use fuel oil as a feedstock. However, the dirty fuel is trading at an unusual premium to international benchmarks, while a tax crackdown by Beijing has added to costs.

“Straight-run fuel oil is simply not an economic feedstock currently,” said June Goh, a senior oil market analyst at Sparta Commodities in Singapore. “With healthy simple margins, independent refineries in China are taking this opportunity to buy incremental crude to increase run rates.”

Around 12 million barrels of heavy fuel oil and residual fuels flowed into China in April, the lowest since September 2023, according to Kpler. Processing rates by teapots in Shandong, meanwhile, have edged higher since the end of February ahead of peak summer demand, OilChem data shows.

Fuhai and Yanchang purchased the Murban cargoes at a premium of around $5 a barrel to August ICE Brent futures, traders said.