China's independent refineries in the eastern Shandong province have cut crude throughputs in recent weeks on the back of strict investigations launched by the environmental protection bureau.
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"All this throughput cut will probably lead to about 20% reduction in oil products supply from the usual levels," said a source with a Zibo-based refinery.
Gasoline and gasoil prices have been rallying since the past weekend, due mainly to tightening supply in the domestic market following the investigations, sources told S&P Global Platts in the week starting Sept. 12.
The price of gasoil has increased by about Yuan 600/mt ($93/mt) since the past weekend while gasoline has jumped Yuan 500/mt ($77.50/mt) in the same period.
The central government-led environmental team has been conducting investigations in Shandong since Aug. 26, and they are expected to continue until Sept. 26.
The checks are much severe than what they used to be in the past years, and has caused a few small-sized refineries to suspend operations. Quite a few medium- to large-scale refineries have had to cut crude throughputs.
The weekly run rates survey conducted by domestic information provider JLC for 43 Shandong-based independent refineries showed that the average run rate fell 0.6 percentage point to 66.6% as of Sept. 15 from the week prior.
"The run rate will likely remain capped due to the recent investigation," said an analyst with JLC.
One Dongying-based independent refiner has cut crude throughput by about 15% to 8,000-9,000 mt/d from about 10,000 mt/d in the past few days, while a second Dongying-based refiner has remained shut for a few days due to the investigations.
A Zibo-based refiner has taken this opportunity to shut one crude distillation unit for maintenance, which has reduced its crude throughput as well as oil products output.
Another Dongying-based refinery has been found with higher CDU capacity than reported. It was still not clear what actions the authorities would take on this matter.
"Quite a lot of refineries have cut the crude throughputs because of the investigation, and a few have shut some secondary units, at least till the close of the investigation," said another analyst.
But given that a few more refineries were found with various issues during this investigation, it was still unclear how much quotas will those Shandong independent refineries get in the last batch.
"I suspect some might not be able to get their full allocations after this," the second analyst said.
China's independent refineries are expected to get at least 13.3 million mt of crude quotas by October, with Zhejiang Petroleum & Chemical likely to get additional quotas for its 20 million mt/year Phase 2 project.