China ‘teapots’ buy more oil globally

China ‘teapots’ buy more oil globally

China’s independent refineries are becoming more assertive in global oil trading, procuring larger volumes of crude and buying it directly from the market.

The country’s so-called “teapot” refineries received some of the first import licenses last year as Beijing looked to boost investment in the energy industry, which has long been dominated by state oil companies Sinopec and PetroChina.

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The teapots — which despite their nickname can be substantial buyers, together representing about a third of China’s total oil refining capacity — have moved quickly to strike deals with some of the world’s largest crude exporters and are finding ways to procure oil that bypass international trading houses.

Last month Shandong Chambroad Petrochemicals Company bought a spot cargo of crude oil directly from Saudi Aramco — the state oil company of Opec’s de facto leader and the world’s largest exporter of crude.

Now, the company, one of eleven independent refineries permitted to import crude itself, will be the first teapot to start trading on the Dubai Mercantile Exchange as it looks to hedge its imports and buy physical cargoes from Oman.

This approach by Shandong Chambroad, say some industry participants, suggests a shift away from the use of middlemen, whether it is big international oil traders or China’s domestic oil industry giants.

The DME said the exchange will be approaching more independent Chinese refineries in the coming weeks and plans to hold a roundtable in the country in mid-May “to assist other local participants”.

The world’s biggest trading companies, which include Trafigura, Glencore and Vitol, have aggressively sought buyers among China’s 20 independent refineries that are able to use imported crude in their plants.

“Some of the teapot refiners have only recently been granted the licenses so they are still learning, said David Wech at consultancy JBC Energy. “They will buy from whomever they can and they will try to buy directly from sources, but it is still early days.”

Oil analysts say that just as China’s state-backed energy companies built their own trading divisions to reduce their reliance on western commodity houses, the teapots are following a similar path. They say it is another illustration of China’s growing influence on world oil markets.

Owain Johnson, managing director at the DME, said western trading houses still hoped China’s independent refiners would become firm customers even as some of the bigger teapots become more self-sufficient in trading.

“It’s hard to overstate the level of interest from suppliers and traders in developing relationships with these guys,” said Mr Johnson.

The majority of China’s refineries are very small, local enterprises that will be dependent on bigger players domestically and internationally for crude procurement.

Before teapots were granted licenses, only the largest state-owned oil companies were permitted to import crude. Teapots had to reprocess fuel oil or rely on supply from larger rivals.

Rapidly increasing energy demand led to China overtaking the US as the world’s largest oil importer in 2014.

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China ‘teapots’ buy more oil globally
BDC July 2022 issue - 294

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