Asia/Pacific News
Teapot Refinery Rule Change Could Put Asia Fuel Oil Prices Under Pressure in 2016
China's move to allow its non-state sector to import 87.6 million tonnes of crude in 2016 will galvanize the nation's independent "teapot" refiners and could lead to a significant reduction in fuel oil imports, Reuters reports.
Clyde Russell, Asia commodities columnist for Reuters, says that in order for other Asian buyers to take up China's slack if import reductions take place, fuel oil prices will have to fall.
China's ministry of commerce on October 30 decreed that independent refiners could import 87.6 million tonnes of crude in 2016, compared to 37.6 million this year; this is the equivalent of 240,000 barrels per day (bpd), up from about 103,000 bpd this year.
Russell speculates that even if the teapots only take two-thirds of the increased quota in 2016 - about 100,000 bpd - fuel oil imports could fall to around 200,000 bpd in 2016, about a third below 2015's likely total.
The columnist notes a key use of fuel oil is for bunkers, but an increase in bunker demand is linked to an improvement in world trade - a possibility but unlikely development for 2016.
"To encourage demand in Asia, it's likely that fuel oil prices, relative to crude, will have to decline further," he says.
Russell suggests a likely outcome is that the flow of oil into Asia will slow and remain in the Atlantic basin.
This scenario, he adds, will make it harder for key fuel oil exporters Russia and Iran to find markets for their fuel oil: "For Russia, this could be the incentive needed to modernize refineries, but Iran may find it harder to follow this path, even as Western sanctions are lifted."
In August Ship & Bunker reported China had granted 715,800 bpd in crude import quotas to independent oil refiners, roughly 11 percent of total crude imports.
