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China crude demand rebounds as refining profits return

Chinese independent oil refiners are snapping up crude cargoes from Russia, Oman, Africa and Brazil for delivery in September-October as they ramp up operations after refining margins turned positive in July, trade and refining sources said.

Strong buying interest from the refiners, also known as “teapots”, drove up spot premiums for grades such as Russian ESPO, Oman, Brazil’s Lula and Angolan crude, that they typically purchase, two Singapore-based oil traders told Reuters.

At least two Chinese refiners are increasing the volume of crude they process at plants to capitalise on higher fuel prices, company executives said.

These refiners were forced to cut production in the first six months on losses after new big refineries added to a domestic fuel supply glut.

“From January to June we were all making losses. This month, thanks to a price increase in refined products, our lives get better,” said a procurement source who buys Russian crude for a Shandong-based refinery.

The source said the refinery bought two cargoes, or 200,000 tonnes, of Russia ESPO, this month and is running its plants at 90%.

The refiners were encouraged by higher gasoline and diesel prices partly due to Beijing’s push for infrastructure investments, the refining sources said.

Teapots are also stockpiling crude after receiving the government’s second batch of import quotas earlier this month, said a second procurement source at another Shandong-based refinery that buys Brazilian Lula crude.

His refinery is operating at full capacity after restarting earlier in July. The company doubled the volume of crude it purchased this month to 300,000 tonnes from last month, the person said, without saying when the oil will be delivered.

Spot premiums for September-loading Russian ESPO crude hit the highest in nine months while premiums for Oman crude rebounded more than $1 a barrel from a 3-month low recorded earlier this month.

But it is unclear for how long the strong demand for crude from teapots will be maintained.

Gross profit margins remained thin at around 5%-10%, while domestic prices for refined products have been highly volatile recently, the refinery sources said.
Source: Reuters (Reporting By Shu Zhang; Editing by Florence Tan, Richard Pullin and Shounak Dasgupta)

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