7 Jun

China’s Teapot Refineries Impact the Crude Oil Market

WRITTEN BY Gordon Kristopher

China’s teapot refineries 

China’s teapot refineries have been driving crude oil demand since 2H15. On June 6, 2017, China’s teapot refineries stressed the importance of following government quotas and taxes, according to Reuters. The demand from these independent oil refineries or teapot refineries fell in April 2017.

The demand from these teapot refineries is expected to fall between June 2017 and August 2017 due to strict import quotas and tax policies. The demand from China is expected to fall due to routine maintenance. Lower demand from China could have a negative impact on crude oil (IXC) (FXN) (IYE) prices.

China’s Teapot Refineries Impact the Crude Oil Market

Lower crude oil prices have a negative impact on oil and gas exploration and production companies like SM Energy (SM), Chevron (CVX), Hess (HES), and Bonanza Creek Energy (BCEI).

Demand drivers

The EIA (U.S. Energy Information Administration) estimates that China plans to build 500 million barrels of strategic crude oil reserve space by 2020. It could add to China’s crude oil imports. Also, China’s crude oil production is slowing. China’s production fell in 2017 due to aging oil fields and lower crude oil prices, which could add to the rise in oil demand. China’s automobile sales are expected to slow down in 2017, which could hamper crude oil demand and imports. Road and air transportation account for 49% of China’s oil demand.

Impact 

Changes in crude oil imports and domestic consumption from China could have an impact on global crude oil demand, which could impact crude oil (XLE) (XOP) prices.

Read OPEC and President Trump: Where Are Crude Oil Bulls? and Geopolitical Tension Could Impact OPEC’s Production Cut for more on crude oil prices.

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