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China’s crude oil imports in July rose for the first time in three months, but were still at their third lowest monthly level so far this year, as independent refiners continue to suffer from the new tax regime eroding their refining margins.
According to data by China’s General Administration of Customs compiled by Reuters, Chinese crude oil imports increased to 8.48 million bpd in July from 8.36 million bpd in June and from 8.18 million bpd in July last year.
In June, China’s crude oil imports had dropped for a second consecutive month and hit their lowest level since December 2017 on the back of trimmed purchases by the independent refiners—the so-called ‘teapots’. Chinese imports stood at 8.36 million bpd in June, down by 9 percent from May’s imports of 9.2 million bpd, and down compared to the 8.8 million bpd imports in June 2017.
In July, Chinese imports recovered somewhat as some of teapots returned from maintenance and as refining margins for the state-held majors improved amid higher fuel prices and waning competition from the independents.
Under the stricter tax regulations and reporting mechanisms effective March 1, the teapots now can’t avoid paying consumption tax on refined oil product sales—as they did in the past three years—and their profit bonanza is coming to an end.
Despite ample government-approved crude import quotas, independent refiners are now losing money on refining, cutting utilizations rates, and are closing for maintenance to cut exposure to the unfavorable market conditions. With higher oil prices this year and the taxes they now can’t avoid paying, the teapots are expected to reduce their imports, threatening China’s oil demand growth, and ultimately, global oil demand growth.
Last month, independent refiner Shandong Haiyou Petrochemical Group filed for bankruptcy, the first such filing in recent years.
Meanwhile, state-run top refiner Sinopec expects its net profit for the first half of 2018 to have jumped by around 50 percent on the year on the back of higher oil prices and improved downstream business. According to Reuters calculations, Sinopec’s net incomes for both the first half and the second quarter this year would be the highest profit figures for the top Chinese refiner since 2013. By Tsvetana Paraskova for Oilprice.com