China independent refiners eye early-Jan crude arrivals amid new quota optimism

China's independent refiners have begun looking for crude cargoes for late-December and early-January deliveries amid expectations that new import quotas for 2024 would be allocated by the end of the year, sources told S&P Global Commodity Insights.

As buying interest grows, price of those cargoes, including ESPO and Malaysia-blended crudes, have started to climb in the last few days, sources said.

Current offers for Malaysian light cargoes were heard at a discount of $7.5-$8.5/b against ICE Brent futures on a DES Shandong basis, for late-December delivery.

In addition, January delivery ESPO cargoes were heard to have been offered at premiums, instead of discounts, for December cargoes, according to an independent refinery source in Shandong. This was due to the fact that many independent refineries have exhausted their current quotas and will now be able to purchase crudes with 2024 import quotas, sources said.

New import quotas for 2024 will likely be allocated by the end of the year, making it possible for independent refiners, who have already run out of quotas for 2023, to bring in those cargoes.

It also partly explains why the offers for late-December/early-January cargoes were generally higher versus those for early-December arrivals, sources said.

The volumes of Malaysian Blend -- which are mainly Iranian crudes -- processed by independent refineries last month stood at 2.32 million mt in October, up 97.1% from a year earlier, according to data from local energy information provider JLC.

November feedstock consumption to fall

Feedstock consumption at China's Shandong independent refineries will likely fall further in November, as refiners have cut throughput amid feedstock shortages, according to analysts.

Latest data from JLC showed that utilization rates at Shandong independent refineries were up 1.35 percentage points as of Nov. 15 from a week earlier to 64.5%.

"Run rates are expected to become stable recently amid the fall in prices of crude benchmarks, but overall feedstock consumption in November will still be lower than that in October," said an analyst.

Refining margins as of Nov. 15 were at around Yuan 192/mt ($26.3/mt) for cracking imported crudes, compared with a loss of Yuan 51/mt as of Nov. 8, according to JLC's calculations. Refining margins improved as a result of weak global crude prices, but demand for oil products locally remained subdued, according to JLC.

In October, feedstock consumption at China's independent refineries was largely steady from September levels at around 2.22 million b/d, JLC data showed.

ESPO consumption up in October

In October, around 1.365 million mt of ESPO was consumed by the independent refineries in Shandong, up 32.1% from a month earlier, according to JLC data. The volumes rose as independent refineries that mainly crack ESPO resumed normal operations last month after maintenance.

ESPO remained the top crude feedstock choice in the first 10 months of the year, with 19.4 million mt being cracked, up 10.3% on the year, JLC data showed.

But apart from ESPO, those refineries also cracked other crudes -- such as Oman, CPC blend, Brazilian Atapu, Tupi and Sapinhoa, Saturno from Angola, which were mostly cracked by ChemChina's refineries.

In addition, feedstock volumes at major ports in Shandong remained high as of Oct. 27. It was up 7.5% from a month earlier at 10.33 million mt, according to JLC data. Those ports included Qingdao, Dongjiakou, Yantai, Rizhao, Dongying, Laizhou and Longkou.

Shandong independent refineries' feedstocks ('000 mt)

Shandong independent refiners' top crude choices('000 mt)

Source: JLC