China’s independent refineries, often referred to as “teapots,” saw an increase in their run rates in March, signaling a potential rise in oil demand from the world’s largest importer. However, analysts remain cautious about the immediate future as economic factors and global sanctions continue to impact the market.
According to Chinese energy consultancy Oilchem, the average run rate for independent refineries rose to 46% last month, a notable increase from February’s below 45%. This rise follows the impact of U.S. sanctions on Russia’s energy sector, which restricted exports and influenced refinery operations. In contrast, state-owned refineries in China maintained much higher run rates, averaging over 75%, the consultancy reported.
The boost in independent refinery operations aligns with a rebound in Russian oil shipments, as both buyers and sellers adapted to new sanctions targeting tankers transporting Russian crude. Additionally, there was an uptick in oil supply from Iran last month, further supporting refinery activity.
Looking ahead, the run rates are expected to continue rising through April and May, largely due to seasonal increases in diesel demand. However, the growth in demand for diesel is predicted to be less significant than in previous years. Mia Geng, head of China oil analysis at FGE, told that diesel demand for 2025 is forecasted to be 250,000 barrels per day lower than in 2024.
Several factors are contributing to the slower growth in diesel demand. China’s shift from diesel-powered trucks to those running on liquefied natural gas (LNG) has reduced the country’s reliance on diesel fuel. Moreover, the rapid growth of electric vehicles (EVs) in China, the world’s largest EV market, is another factor dampening diesel demand forecasts.
Further complicating the outlook for China’s oil demand is the ongoing trade tension between the United States and China. The recent imposition of 34% tariffs on each other’s goods is expected to lead to a decline in oil demand, as U.S. crude becomes more expensive, and the tariffs begin to exert pressure on broader economic growth in both countries.
While March’s increase in refinery run rates offers some optimism, the broader picture for China’s oil demand remains uncertain amid shifting economic and geopolitical dynamics.