Refineries lose money on oil refining! Shandong independent refineries finally approved to cut production, operating floor lowered by 20%

Hongze Research stated in a report released on Monday that since June, China has adjusted its production control policies for independent refineries. Many private refineries in Shandong (commonly known as "teapot refineries") have received new regulations adjusting the minimum processing volume to no less than 80% of the average monthly production capacity of last year. The policy has been confirmed by two industry traders, and the control details were issued and implemented by the National Development and Reform Commission.

This new regulation represents a significant relaxation compared to previous production guidelines. Previously, affected by the blockade of the Strait of Hormuz and geopolitical conflicts disrupting international crude oil supply, China had issued strict regulations requiring refineries nationwide to anchor their operations to the average production levels of the previous two years to fully ensure domestic refined oil supply. As the external fuel supply chain marginally eases, regulators have accordingly lowered the threshold for operational constraints.

Reports indicate that as early as early May, many independent refineries in Shandong collectively submitted applications to the competent authorities. Dragged down by continuous losses in refining, enterprises requested a reduction in crude oil processing loads, with some applying to shut down partial production units and cut operations. After nearly a month of communication and coordination, these requests for production reductions have seen a policy-level loosening.

Industry traders admit that even with the production assessment standard lowered to 80% of last year's output, current production tasks still suppress industry operations. Currently, independent refineries in Shandong are generally trapped in a predicament of processing losses, incurring losses for every barrel of crude oil refined. The optimal operational choice for most refineries is a complete shutdown to avoid risks, yet the 80% operation floor still forces enterprises to passively produce with low efficiency, and the industry profitability dilemma has not yet been resolved.

The core of this policy adjustment stems from changes in the external environment: Previously, the continued blockade of the Strait of Hormuz triggered panic over global fuel supply, and China relied on the high operating rates of teapot refineries to hedge against the uncertainty of imported oil sources and stabilize gasoline and diesel inventories. Now, as oil pipelines bypassing the strait in the Middle East are successively planned and implemented, and international oil supply risks recede, regulators have accordingly relaxed the strong production mandates for supply security, balancing domestic refined oil supply and demand with the actual operational status of refining enterprises.