China’s “teapot” refiners are facing double trouble, caught between a fear of Western sanctions and a domestic shortage of import quotas. This combination is set to severely impede their purchases of Russian oil for the remainder of the year.
The sanction fear is acute. The blacklisting of Shandong Yulong Petrochemical Co. by the UK and EU has made other teapots wary of attracting similar penalties. This has caused them to hold off on Russian crude, which had been a favored discounted feedstock.
This is happening as state-owned giants Sinopec and PetroChina also pull back, reacting to US sanctions on Russian producers Rosneft and Lukoil. This widespread “buyers’ strike” has crashed the price of Russian ESPO crude and affects an estimated 400,000 barrels a day.
The US and its allies are ratcheting up this pressure to choke off Moscow’s oil revenues. Russia had successfully pivoted to China, its biggest customer, but that trade is now under direct attack.
The quota shortage is a separate but related problem. Recent tax changes have shrunk the teapots’ use of other feedstocks, leading them to burn through their crude import quotas faster. This domestic policy issue means that even if they were willing to risk sanctions, their ability to buy is limited.
Quota Shortages and Sanction Fears: Teapots’ Double Trouble
