The operating rate of independent oil refineries in China, known as 'teapots', has fallen to a nine-year low.
The development shows that the country's oil refining industry is still affected by the conflict between the United States (US) and Iran that erupted earlier this year.
According to consulting firm JLC, the operating rate of the refineries fell to just 50.5% in the week ended June 21.
The figure is not only lower than during the COVID-19 pandemic, but also the weakest level since 2017.
The decline occurred due to high raw material costs, weak domestic fuel demand and restrictions on the export of petroleum products that have hit producers' profits.
China is the world's largest importer of crude oil and is among the main buyers of Iranian oil. However, after the US-Iran conflict erupted in late February, global oil prices surged, causing China to significantly reduce crude oil imports.
At the same time, the country is also undergoing an energy transition that has seen the use of electric vehicles and alternative energy sources increase, reducing its reliance on fossil fuels.
While Iran is now working to restart its oil exports following the temporary easing of US sanctions, demand from China’s independent refineries is expected to remain weak in the near term.
This is because current market conditions still discourage producers from increasing production.
China market analyst at Vortexa Ltd., Emma Li, said refineries are not actually facing a shortage of crude oil.
Commercial oil inventories in Shandong province, which is the main hub for teapots, remain high.
She expects operating rates to remain weak in July before showing signs of gradual recovery in the following months.
