By Siyi Liu and Trixie Yap
SINGAPORE (Reuters) – Run rates for China’s struggling independent oil refiners have nudged up recently, but still face near-term pressure over tepid domestic fuel demand and supply risks from U.S. sanctions and tariffs, industry participants and analysts said.
Lower-than-average crude runs for the Shandong province-based independents known as teapots could erode China’s oil appetite, placing additional downside pressure on a crude market already reeling from tariff and recession worries.
Teapots, which account for one-quarter of China’s processing capacity, are key buyers of discounted crude from Russia, Iran and Venezuela and bear the brunt of the hardening U.S. stance on exports by the three countries, including sanctions in January that drove a significant slowdown in flows from Russia to China.
The tougher external environment comes on top of weakening domestic demand and Beijing’s new regime of fuel oil tariffs and reduced tax rebates that led teapots to lower operations and bring maintenance forward to January and February.
Capacity utilization rates among the teapots in Shandong rose to an average of 46% in March, the first gain in three months, according to data by local consultancy Oilchem.
However, last month’s gains are from a low base, with rates having dropped below 45% in early February, the lowest in at least two years.
March rates increased on improved supply from Russia and Iran as non-sanctioned tankers joined the lucrative trade, but remain far below the 65% of capacity in late 2023.
By comparison, China’s state-owned refiners operate above 75% of capacity, Oilchem data shows.
Consultancy FGE estimates a recovery of 50,000 barrels per day (bpd) for Shandong independents’ crude runs in March, having dropped by 400,000 bpd between December 2024 and February 2025.
Runs should recover further in April and May when domestic diesel demand picks up seasonally, but remain 250,000 bpd below year-earlier levels, said Mia Geng, FGE’s head of China oil analysis.
A drop in global oil prices since mid-January and refinery maintenance at plants run by state-owned Sinopec, Asia’s biggest refiner, also support higher teapot run rates.
Several major refineries will shut at least 1.8 million bpd of crude processing capacity for maintenance in April, with volumes dropping to about 1.2 million bpd in May, according to Reuters calculations.
However, with more U.S. sanctions against Iran expected, feedstock supply uncertainties will continue to undermine profitability in coming months, Geng said.
