China has relaxed strict fuel production targets for independent refiners, allowing output drop to 80% of 2025 levels, Reuters reported on Tuesday.
This policy rolls back an emergency mandate enacted early in the conflict that forced refiners to maintain outputs matching their two-year historical averages to safeguard national fuel supplies, as per the report.
Independent refiners in the eastern refining hub of Shandong, commonly known as teapot refiners, have been notified that they may scale back crude processing, according to Reuters, citing the notes from consultancy Horizon Insights and trade sources.
Trapped between government-capped domestic fuel prices and soaring imported crude costs caused by the Middle East conflict, Shandong's teapots saw profit margins collapse.
As per the report, energy consultancy OilChem reported that independent refiners are losing an average of 752 yuan ($111.21) for every ton of imported crude processed, a steep increase from the 202 yuan per ton losses recorded in April.
As a result, many independent operators had proactively petitioned Beijing in May to lower processing rates or temporarily suspend specific refining units to stave off mounting losses.
Despite the newly granted flexibility, the report noted that maintaining an 80% production floor remains a heavy operational burden for a sector that would prefer to completely halt operations until margins turn positive.
Independent refiners in Shandong accounted for roughly 16% of China's gasoline output and 25% of its diesel output in May.
None of the parties involved responded immediately to' request for comments, while the National Development and Reform Commission could not be reached out for comments.
(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)