Key facts
- Chinese private refiners have purchased Saudi, Emirati, and Iraqi crude on the spot market.
- These purchases are occurring amid a significant drop in oil prices.
- Earlier in the year, Chinese refiners reduced their crude purchases and processing rates due to high prices and weak demand.
- The Chinese government is easing restrictions on refined product exports.
Chinese private refiners, often referred to as 'teapots,' are actively purchasing Middle Eastern crude oil on the spot market as prices have fallen. This comes after a period earlier in the year when these refiners significantly reduced their overseas buying and processing activities due to surging benchmark prices and weak domestic fuel consumption.
Recent reports indicate purchases of Saudi and Emirati crude for prompt delivery, as well as Iraqi crude for next month. These acquisitions occur as oil prices have dropped, influenced by expectations of recovering tanker traffic in the Strait of Hormuz and increased production from Gulf producers, potentially linked to hopes for an end to the U.S.-Iran conflict.
Earlier in 2023, Chinese refiners, both state-owned and private, had cut back on imports and processing rates, with teapot refiners reaching their lowest levels since 2017. This was attributed to high feedstock costs, sluggish domestic fuel demand, and limitations on refined product exports, which squeezed profit margins.
In response to market conditions, the Chinese government has begun to ease export restrictions on refined products. In late June, state-owned refiners were permitted to export up to 800,000 tons of refined products in July, a slight increase from June's estimated 600,000 tons, though still significantly lower than the previous year.