China Sees 40% Surge in Fuel Oil Imports to Seven-Month High

China’s fuel oil imports reached a seven-month high in July, with a remarkable increase of 40% compared to June. This surge brought imports to approximately 401,000 barrels per day (bpd), reflecting a notable rise of 42% from the same month last year. This spike is attributed to declining refining margins, which have prompted refiners to seek out more affordable feedstock options.

The acceleration in fuel oil imports follows a period of low activity, particularly noted in May when imports hit an 18-month low. Although June saw a 7% increase in imports from May, the figures remained lower than those recorded in June 2022. The recent uptick in July can be linked to a combination of economic factors, including diminishing crack spreads and refining margins that made fuel oil a more cost-effective alternative to crude oil.

Government Incentives Boost Import Activity

Significant policy changes in the Shandong Province, a vital refining hub for China’s independent refiners, have further stimulated this growth. In early July, the provincial government increased tax rebates on fuel oil imports for local refiners, aiming to alleviate the financial pressures they have been facing. The consumption tax rebates have been raised by 25 percentage points, now ranging between 75% and 95% for gasoline and diesel produced from imported fuel oil. This adjustment is expected to bolster economic activity within the region, providing relief to independent refiners commonly referred to as “teapots.”

Analysts suggest that these measures are designed to alleviate the struggles faced by private refiners in Shandong, many of whom lack adequate crude import quotas or have not been allocated such quotas by the government. As a result, these refiners rely heavily on fuel oil imports to produce higher-value fuels such as diesel and gasoline.

The Shandong refiners play a crucial role in China’s energy landscape, particularly as they navigate the challenges of limited access to crude oil imports. The recent policy enhancements are anticipated to stimulate both industrial activity and the operational viability of independent refiners, allowing them to remain competitive in the marketplace.

The developments in China’s fuel oil import landscape reflect broader trends in the global energy sector, where economic pressures and regulatory changes can significantly influence market dynamics. The focus now shifts to how these refiners will adapt to the changing conditions and whether these incentives will lead to sustained growth in imports moving forward.