Chinese refiners buy oil from storage, raise output with fresh import quota
- Teapots buy Iranian oil from bonded tanks at wide discounts
- Operating rates at teapots rise to 61.3% in week to December 3
- Analyst revises up Dec teapot processing by 150,000 bpd
- Russian oil demand stays weak, ESPO discount hits record low
Chinese independent refiners are buying discounted Iranian crude held in onshore storage tanks using newly issued import quota to swiftly raise their output, trade sources and analysts said, easing a supply glut.
Stocks have built up in recent months after the refiners, known as teapots and mostly based in eastern Shandong province, ran out of import quota in October.
Last week, Beijing issued in advance the first batch of crude oil import quota for 2026 of about 8 MM tons (t) (58.4 MMbbl) to 21 refiners, although one Chinese crude buyer said the volume is small enough that it would be exhausted by the end of this year.
Operating rates at Shandong teapots climbed to 61.3% in the week to December 3, after holding at around 50% in the previous months, according to Chinese consultancy JLC.
"With extra quotas, private refineries will raise runs and we have revised up our December China runs forecast by 150,000 bpd," said Energy Aspects senior analyst Sun Jianan.
Teapots are buying Iranian crude from bonded storage tanks because it takes only a few days to reach their plants, with some deals negotiated before the quota release, trade sources said.
One of them added that oil in storage was cheaper as cargo owners were looking to destock.
Wide discounts. Iranian light crude from Shandong bonded tanks was recently sold at discounts wider than $8 per barrel to ICE Brent, versus about $6 in September, trade sources said.
Deeper discounts mean higher margins for teapots.
The newly issued quota, however, is unlikely to drive a significant increase in China's seaborne crude imports, according to Sun and Vortexa's lead China market analyst, Emma Li.
Russian oil. Despite the release of new quota, China's appetite for Russian oil remained weak as state refiners have suspended purchases on sanctions fears, depressing flagship Russian ESPO Blend crude to its widest discount ever at over $6 a barrel to ICE Brent, trade sources said.
Traders pointed to more unsold cargoes loading in December, adding that some buyers were waiting for prices to fall further before making purchases.
Comments