The CNPC-operated Dushanzi Petrochemical Factory in the Xinjiang Uyghur Autonomous Region of China. The Chinese government has been directing major refiners to maintain high production levels as tensions rise in the Middle East. [Getty Images]
The CNPC-operated Dushanzi Petrochemical Factory in the Xinjiang Uyghur Autonomous Region of China. The Chinese government has been directing major refiners to maintain high production levels as tensions rise in the Middle East. [Getty Images]

China, which had normalized oil exports after the Iran war entered ceasefire negotiations, is once again bracing for disruptions to its crude supply chain as US-Iran tensions escalate. Beijing has issued directives to some major refiners to keep refined fuel production at elevated levels, signaling heightened concern over energy supply.

Bloomberg, citing multiple sources, reported Sunday (local time) that Chinese authorities had called on at least two major refiners to maintain or increase refinery utilization rates.

When the Iran war broke out following US and Israeli airstrikes on Feb. 28, China faced growing difficulty securing crude from the Middle East. In March, Beijing restricted refined fuel exports, citing the need to guard against potential domestic fuel shortages. In April, it shifted to a selective-approval system, allowing only state-owned companies to export to government-approved destinations. As conditions in the Middle East stabilized somewhat, China gradually eased those restrictions and allocated additional refined fuel export quotas earlier this month.

However, after Iran attacked three civilian vessels in succession on Tuesday as they attempted to transit the Strait of Hormuz via the Omani shipping lane — prompting US airstrikes on Iran — Beijing tightened its grip on energy exports again. Sources told Bloomberg that China is still strictly managing refined fuel exports under a quota system and has no plans to adjust this month's export volumes further.

Bloomberg noted that domestic refined fuel consumption in China is also slowing structurally, but that authorities have stepped in to manage production at major refiners as a matter of energy security.

Markets expect higher Chinese refinery utilization rates to weigh on Asian refining margins. Bloomberg reported that the refining spread between Asian gasoline prices and Dubai crude prices had already fallen to its lowest level since late March, and that China's production expansion could further squeeze the profitability of regional refiners.


kate01@heraldcorp.com