China’s independent “teapot” refiners have started re-offering West African crudes that have already loaded as they have drastically cut their run rates after stricter tax reporting rules were introduced in March and ahead of a closure at a key port in China in June that will limit crude imports, traders said this week.
“Yes, teapots [are] reselling [mainly] WAF crude, but which teapots are buying?” a trader based in Singapore said, adding: “They’ve been flaking on cargoes [since] the tax issue, and pulling down run rates.”
Demand from China has fallen drastically since independent refineries — also referred to as “teapots” — are no longer allowed to crack imported crude oil without a crude quota, which was a loophole in the previous tax reporting system.
As a result of the tax policy changes, crude imports by China have fallen, led by lower demand from the teapots. This has contributed to an overhang of crude available around Chinese ports, sources said.
ESPO and Oman crudes have been among the crudes that have been offered at ports over the past few months, and now West African cargoes have been added to the mix.
Although, the major Chinese refiners were also heard offering excess crude to the local market, with one crude trader based in London saying: “Some majors and trading company still have plenty of barrels unsold heading to China.”
TEAPOTS RE-OFFER WAF CRUDES
Weaker demand from China has particularly weighed on heavy Angolan grades, which have been slow to clear during this trading cycle, sources said, with one trader saying that only 50% of the May loading program had yet cleared.
Angola’s Kissanje, Cabinda and Plutonio were among the grades heard offered by the teapots this week, in addition to Brazil’s Lula and Saphinoa grades, for arrivals over May and June, but no pricing for these grades has yet to be confirmed.
China typically takes well over half the Angolan program each month, but this recent fall in demand has sent pricing differentials for Angolan grades fall to three-month lows.
Another factor contributing to the slowdown in Chinese demand for crude has been upcoming closure at port Huangdao, which is part of Qingdao Port International — China’s biggest crude import complex by volume — sources said.
“Teapots are trying to shift purchases to other ports,” a crude trader based in the US said, but added: “Demand in China is not so good.”
The port closure is initially planned to take place in June for a 20-day period while Qingdao hosts the week-long Shanghai Cooperation Organization Summit, a source with Qingdao port said. But this has not been fixed yet, he added.
The high crude inventories in China as well as refinery maintenance in the region may further dampen buying interest in the coming week for heavy West African crudes that typically supply the Chinese markets, sources said.
The run rates at China’s independent refineries, as well as ChemChina, in eastern Shandong province, dropped by 5% month on month to a six-month low of 62.5% in March, due to high oil-product stocks after the introduction of the new tax reporting system, according to a monthly report from local information provider JLC.
Source: PlattsPrevious Next
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