Against the backdrop of Middle Eastern conflicts driving up oil prices and domestic fuel demand remaining weak, China is prioritizing energy security over refinery profits. According to several informed sources, Reuters reports that the National Development and Reform Commission has requested independent refineries to maintain crude oil processing rates at no less than the average level of the past two years to ensure domestic fuel supply. Failure to comply could result in a reduction of crude oil import quotas for the refineries. For the "teapot" refineries, which are highly dependent on quota-imported crude oil, this requirement means that any planned production cuts in April will be replaced by policy-driven stable production.
This requirement directly counters the market's previous expectations of production cuts. Reuters reported on March 31 that due to the dual pressures of soaring crude oil prices and weak domestic demand, China's small independent refineries initially planned to reduce processing volumes in April, with operating rates potentially dropping to around 50% from approximately 55% in February and March. Now, regulatory intervention to stabilize processing rates shows that the priority of "supply security" has clearly surpassed short-term operational flexibility in policy considerations.
More noteworthy is that this is not an isolated measure, but is in line with China's continuation of refined oil export restrictions. Reuters previously reported that China has extended refined oil export restrictions to April, leaving only limited exceptions. This means that Beijing is employing a dual-track approach of "stable processing, controlled exports" to lock more fuel resources within the domestic market to address risks stemming from ongoing uncertainties in the Hormuz Strait and Middle Eastern supply chains. For the Asian refined oil market, this policy combination helps alleviate concerns about domestic shortages in China but may keep external regional supply relatively tight.
From a market perspective, this news leans more towards a "supply protection signal" rather than a "profit benefit." Teapot refineries face rising costs and squeezed profits in a high oil price environment, and now they are required to maintain processing rates, indicating that the primary policy goal is to stabilize domestic energy supply rather than improve refinery profitability. If the Middle Eastern situation continues to disrupt, and high oil prices persist longer, this method of stabilizing supply through administrative means may extend to longer-term export controls and quota constraints.
