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Chinese independent refiners shy away from crude purchases amid rising stockpiles, low margins
7/22/2020 12:00:00 AM

Plagued by high crude stockpiles and weak margins, Chinese independent refiners have curtailed buying cargoes in the September-loading cycle, impacting differentials for several China-focused grades in the region.

Chinese refiners' top crude picks, including Oman and Russia's ESPO Blend grades, have taken a hit in recent days amid tepid buying appetite from teapots, another name for China's independent refineries.
"The Chinese market is still flooded with supply, inventories are still high and refining margins are still weak," a source from a Chinese trading house said.
China's crude oil imports soared 34.4% year on year to an all-time high of 12.99 million b/d, or 53.18 million mt, in June as Chinese buyers who had rushed to secure cheap crudes in late March received their deliveries in the month, preliminary General Administration of Customs data showed July 14.
The record-high inflow was within expectations, but has caused serious congestion in China waters, Platts previously reported.
"There are a lot of stocks around right now ... either in floating storage units or in tanks ... teapots are not keen to buy," said the China based crude trader.
"Unsold cargoes from the July/August loading program of ESPO are still floating because of congestion," the source added.
In the week beginning July 20, the volume of crude on tankers idled in Chinese waters for seven or more days were at 80.27 million barrels, a third all-time high, according to data intelligence firm Kpler.
Poor margins
Weakening refining margins in China have also been a contributing factor to limited purchases of crude by Chinese independent refiners, trade sources said.
China's domestic refining sector involves regulated refinery gate product prices, calculated as a formula based on an input crude price with a floor at around $40/b.
"Independent refineries which are cracking crudes that bought at over $40/b will even make a slight refining loss," a Singapore-based trader said.
Front-month ICE Brent futures prices, which averaged $26.63/b in April and $32.41/b in May, have averaged above $40/b since then at $40.77/b in June and $43.10/b so far in July, Platts data showed.
"Domestic margins are also not great so teapots not keen on buying," said another crude trading source.
The domestic refining margin in June for Shandong independent refiners slid Yuan 169/mt ($24/mt) to around Yuan 285/mt, theoretically, for cracking imported crudes, according to Platts calculations in July based on raw data from JLC.
Source: SP Global