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China’s Oil Processing Could Slow Amid Teapot Tax Probe

Chinese authorities plan to launch a new round of tax probes on private refiners, the so-called teapots, sources in the refining industry told Reuters on Monday, in what could slow down further the crude processing rates at the world’s top crude oil importer.

The independent refiners in China, mostly located in the eastern province of Shandong, account for around a fifth of all Chinese crude imports.

The new tax investigations, expected to begin later in August per Reuters’ sources, could further put downward pressure on fuel output in China, where demand faltered at the start of the summer due to snap COVID-related lockdowns.

China first started investigations into its independent refiners in early 2021 to see if there was evasion of fuel taxes, irregularities with quota trading, or reselling of crude from state-owned refiners to teapots.

The new investigation could last for months and depress the business of independent refiners.

“For most of this year many plants operated in the red... and now we are going to experience another round of stringent inspections,” a Shandong-based refinery executive told Reuters.

Chinese authorities from 15 state agencies are expected to take part in this new massive round of investigations.

A trading executive at a Shandong-based independent refiner told Reuters their firm was informed last week a tax inspection was coming. The company is preparing for this, they said. 

In a previous probe, Chinese authorities early this year seized the profits a unit of state giant China National Petroleum Corporation (CNPC) had made from what Chinese planners found was an “irregular” trade of imported crude oil. CNPC’s subsidiary PetroChina Fuel Oil Co Ltd was found to have sold 179.5 million tons of imported crude to 115 independent refineries since 2006.

Meanwhile, China’s overall crude oil imports fell in July 2022 by 9.5% compared to July 2021, as daily volumes dipped to the second lowest in four years, official Chinese data cited by Reuters showed.   

By Tsvetana Paraskova for Oilprice.com

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