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China’s independent refiners have slashed their processing rates to the lowest level in nearly five years as costs to procure crude soared amid dwindling Russian supply following the latest U.S. sanctions.
Crude supply became more expensive for the private Chinese refiners, concentrated in the Shandong province, and dragged refining margins to a loss.
The independent refiners, commonly known as teapots, have slashed run rates, to just 43.64% of processing capacity as of this week, according to data from industry consultancy Mysteel Oilchem reported by Bloomberg. This is the lowest average crude processing rate since the start of the Covid pandemic in March 2020.
The Biden Administration’s farewell sanctions on Russian oil trade and shadow fleet crippled supply of Russia’s ESPO crude shipped from the port of Far Eastern Russian port of Kozmino. ESPO has been a favorite with the Chinese refiners, but the scores of oil tankers sanctioned by the U.S. slashed the availability of non-sanctioned tankers to ship Russian crude to China.
As Russia’s top buyers in Asia – China and India – prefer to steer clear of sanctioned tankers and entities involved in the trade, the freight rates for shipping Russian crude to its biggest buyers have soared.
This has made refining crude at many private refineries in China’s Shandong province unprofitable, and many plants slashed run rates.
Further reductions in crude processing volumes could occur this month, too, according to consultancy JLC.
Many of the vessels, specialized tankers, and shuttle tankers transporting Russia’s oil from the Arctic and Far East Pacific fields and production clusters to Asia have now been sanctioned.
Russia is said to have started to reshuffle tankers to prioritize shipments to China. Aframax tankers that serviced crude exports from Russia’s western ports are now being redirected to the Russian Far East-China route to service the exports of ESPO crude, Bloomberg reported last month, citing shipbroker and ship-tracking data.
