China surprised energy markets twice over the past week, hiking the crude import quotas for independent refiners by more than anticipated and also doling out unexpectedly generous fuel export quotas for large and state-run refiners.
“Non-state-trade” will be allowed to import 142.42 million tonnes (2.86 million bpd) of crude in 2018, up 55% on the 91.73 million tonnes (1.84 million bpd) granted for 2017, the Ministry of Commerce (MOFCOM) said last week.
Although the ministry did not break down what proportion of the quotas went to independent refiners, so-called teapots accounted for around two-thirds of the total in 2017.
Analysts note that while generous, the new quota will still fall short of independent refiners’ requirements. But it is possible that Beijing will raise the quotas as 2018 progresses.
The fact that Beijing announced the quotas earlier than usual has also been interpreted as a possible sign that the government is gradually relaxing its control over teapot refiners.
Policies governing the sector had been tightened over the past year because of a domestic fuel glut and concerns about overcapacity. The government cut its 2017 crude import quotas for independent refiners by nearly 17% from the previous year and banned them from exporting fuel.
MOFCOM has also added 643,000 bpd to the 2017 fuel export quota for oil refiners across the board, although teapots still do not have any export quota. The total full-year export quota for 2017 for refiners is now 933,000 bpd, up from 826,000 bpd before the ministry’s announcement.
Within this, the annual quota for gasoline exports rises to 275,000 bpd from 235,000 bpd, while that for diesel increases to 356,000 bpd from 295,000 bpd and the quota for jet fuel inches up to 302,000 bpd from 295,000 bpd.
“These announcements support our earlier forecast of rising year-end exports and crude imports beyond this winter,” ESAI Energy’s Yao Wu said. “In addition, the soaring non-state crude import quota next year will encourage competition between independent and state-owned companies. While there is still no indication that independent refiners will be granted fuel export quotas next year, we expect them to play a more significant role in China’s fuel markets in 2018.”