In February, China’s refinery runs reached a record of 12.2mb/d. Refinery runs in March increased 53kb/d y/y, reaching rate of 10.6mb/d. Post freeze in retail prices, refineries in China have enjoyed strong margins. In the first quarter of 2016, several teapot refineries are running at full capacity.
However, refinery runs are likely to decline 5% q/q in Q2 2016 because of maintenance, according to Barclays. Huge volumes of crude are being imported by teapot refineries with the help of the latest government allotted import licenses.
But the major import volumes have weighed down the current capacity of infrastructure at the Qingdao port. This has resulted in diverting the tankers, congestion and rising costs for traders on demurrage. Moreover, there is a lack of pipeline access to the teapots from the port. This suggests that truck will deliver 80% of the oil the teapot refineries buy.
This will further result in rise in costs and tanker rates. This is expected to slow down the demand for crude imports from teapot refineries in the second quarter, said Barclays. After the Yantain crude pipeline begins operating in June-end of early-July, crude imports from teapot refineries might start again in huge volumes.
