China’s teapot oil refineries could become ‘money-printing machines’ amid crude price crash

Lower cost of crude oil raises prospect of large profits for small refiners, who have been struggling to stay afloat amid coronavirus outbreak

But weak domestic market due to virus-hit economy could scupper hopes for Shandong refineries, even after boost from cheap oil

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Most of the refineries are located in Shandong province, which can process 15 million tonnes (109.9 million barrels) of crude a year, including Shandong Dongming Petrochemical Group, the province’s biggest privately-owned refinery. Photo: Getty

Published: 10:30am, 12 Mar 2020Updated: 11:07am, 12 Mar 2020

The collapse in the price of crude oil has thrown a lifeline to China’s army of small private refineries, who have been battling multiple headwinds and struggling to stay afloat, industry insiders said.

A price war between Russia and Saudi Arabia, however, has provided timely respite, driving oil prices down and helping them ramp up production and potentially allowing them to tap the international finished oil market, should Beijing grant export licenses.

Most of the refineries are located in Shandong province, including Shandong Dongming Petrochemical Group, the province’s biggest privately-owned refinery which can process 15 million tonnes (109.9 million barrels) of crude a year.

Company executive Zhou Menghan said it is back at 100 per cent capacity and that its Singapore trading unit is busying arranging new shipments of low-price crude to China. “The low crude price is certainly good news,” Zhou said.

These “teapot” firms were toughing it out before the coronavirus epidemic hit China’s economy, due to cutthroat competition with bigger state-owned rivals, rising costs and weaker sales. The virus then forced Chinese factories to close and vehicles to be parked up for weeks, in another hammer blow for the teapots.