China’s Teapots Don’t See Major Impact From Shandong Oil Product Rules

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By Tsvetana Paraskova

Chinese independent refiners—commonly known as teapots—are not expected to be heavily impacted by restrictions on production, blending, and sales of oil products that the Shandong province, home to most independent refiners, released this week, sources at the companies tell S&P Global Platts.

Earlier this week, the provincial government of Shandong issued a list reiterating restrictions in the oil products sector and mandated provincial authorities to start random checks for compliance with regulations such as refiners to operate under their respective licenses and produce fuels meeting standards.

Refiners don’t see a major impact from the restrictions, also because they are not too specific.

“The wording was severe but the content was too general, leaving a wide gray area. We cannot assess the impact until we know how the government plans to monitor and punish those breaking rules,” a refiner based in Dongying told Platts.

While it says that fuel standards have to be met by refiners, the Shandong government’s list of restrictions doesn’t specify any provincial or national standards, nor does it explicitly say which products are restricted or banned.

According to data from Chinese information provider JLC, quoted by Platts, independent refiners in the Shandong province ran their refineries at an average rate of 65.7 percent in the fourth quarter last year. This compares to an average run rate of 59.5 percent in the third quarter of 2018, and with a 66.6-percent run rate in the fourth quarter of 2017.

Independent refiners contributed a lot to China’s 30-percent jump in crude oil imports in December compared to a year earlier. The surge was the result of independent refiners rushing to exhaust their import quotas before the end of the year. This pushed the daily rate of shipments into China to 10.31 million bpd. That’s the second month in a row when Chinese refiners imported more than 10 million bpd of crude oil, Reuters notes, with the December figure slightly below the record-high November import rate.

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