20 Jul 16, 18:57 - Crude oil, Oil products, Fundamentals, Refining
Houston, 20 July (Argus) — China's move toward a market-oriented economy has spurred a glut of refined products as many refiners import seaborne crude for the first time on newly-allowed licenses.
Fu Chengyu, the former chair of China's largest refiner Sinopec, told Columbia University's Energy Exchange Podcast this week that the Chinese government did not seek the proliferation of private refineries, known as teakettles, but that the potential for profit drove the growth. This was a side-effect of the Xi Jinping administration's changes to communist party doctrine which gave the market a decisive role in resource allocation.
Crude imports to China are up by 900,000 b/d through the first six months of 2016 compared to the same time period last year, as China's main economic planning body, the National Development and Reform Commission (NRDC), approved independent refineries to receive seaborne imports in 2015.
Teakettles in China's Shandong province are responsible for nearly 600,000 b/d of Chinese imports in the first quarter, according to Argusdata. The large volumes of imports are expected to drop in the coming months as many refineries are scheduled for maintenance and as storage nears capacity.
Many teakettles imported high volumes of crude in hopes of re-selling the oil to other private refineries without import quotas and on expectations that oil prices would rise. Teakettles' hopes of re-selling crude are being dashed as state-owned enterprises and trading companies are discounting crude at record levels to supply the already saturated Shandong refineries.
Fu said that imports to China rose because of cheap oil prices. He said that Chinese oil consumption will increase should prices remain low as the country looks for alternatives to coal, but consumption should flatten if oil prices approach $80/bl.