Chinese Teapots Slash Operating Rates amid US Sanctions on Russian Crude
As US sanctions disrupt the supply of Russian crude, private oil processors in China have drastically reduced their operating rates to levels not seen since the pandemic's onset.
Mysteel Oilchem reports that run rates at Shandong province's "teapots" have plunged to 43.64%, the lowest since March 2020. The teapots, located on China's east coast, have been heavily impacted by Washington's crackdown on Russian oil exports following the Ukraine invasion.
The sanctions have curtailed the flow of ESPO crude from the Pacific port of Kozmino, which has forced teapots to reduce operations. The already strained economy and weak fuel demand have further exacerbated the situation.
Across Asia, refineries have felt the impact of the sanctions. The sudden shortage of Russian oil has driven up interest in alternative sources from Oman and Abu Dhabi, while freight rates have skyrocketed. Refineries in Singapore, South Korea, and Taiwan are particularly vulnerable to the increasing costs.
Amidst rising costs and a slowing market, Shandong's teapots have experienced a sharp decline in refining margins. According to OilChem, they have fallen to a loss of over 150 yuan per ton in the week ending January 23, compared to a profit of over 300 yuan per ton in the same period last year.
Chinese ESPO buyers are now facing higher prices for cargoes delivered on non-sanctioned tankers or the risk of cheaper blacklisted vessels. Another consultancy, JLC, warns that teapots may cut runs further this month.
Even before the US sanctions, Chinese ports had grown cautious about handling sanctioned tankers, resulting in vessels carrying Russian crude being forced to idle offshore.