China's Independent Refinery Utilization Drops to Nine-Year Low as Asian Refiners Slow Middle Eastern Crude Purchases
Claire Weston
China's "teapot" refiners saw utilization fall to 50.5% — a nine-year low — as a triple margin squeeze forces cutbacks; Asian buying has cooled in tandem, pushing Middle East crude westward to Europe while forward curves flip into contango.
Why did teapot utilization break below pandemic lows?
As of the week ending June 21, teapot refinery utilization dropped to 50.5%, below Covid-era troughs and the weakest since 2017, per JLC data.
Three forces are stacking up: high feedstock costs + weak domestic fuel demand + tight product-export quotas — margins have compressed enough to force voluntary run cuts.
This means → feedstock is not the problem. Shandong private commercial inventories remain above 2025 highs. Crude is sitting in tanks because refiners lose money processing it.
When does this bottom out?
Vortexa chief China analyst Emma Li expects utilization to slide further in the second half of June.
She sees July as the likely trough, with recovery beginning only after that.
In plain terms = the worst stretch is still ahead — at least another month of pain before any rebound.
Asian buying slows — where is Middle East crude going?
Asian refiners pulled back sharply after a three-week buying spree, slowing purchases of Middle East crude.
Shell and trading house Mercuria have stepped in to pick up some of the remaining barrels.
ADNOC sold roughly 60 million barrels across its first three tenders (loading June–August), mostly to Asia. Its fourth tender closes this week; traders expect a similar slowdown, with some barrels redirected to Europe.
This means → Asia — the default buyer for Middle East crude — is stepping back. European buyers and trading houses are filling the gap.
Is there room for additional spot buying?
Most refiners have already covered this month's and next month's needs. Traders say fresh spot buying would require steep discounts.
ADNOC is also pressing term-contract customers to resume liftings immediately, further squeezing spot demand.
In plain terms = buyers are full, yet the seller is pushing existing clients to take more — caught in that pinch, spot barrels can only move at lower prices.
Is the supply side expanding or contracting?
Iraq and Kuwait are ramping up output, preparing for the reopening of the Strait of Hormuz.
A temporary U.S. sanctions waiver on Iranian crude is adding available supply, though financing and insurance hurdles still deter some refiners.
This reflects a supply side that is not contracting at all — it is expanding on multiple fronts simultaneously, in stark contrast to retreating demand.
What signal is the market structure sending?
Dubai and Murban crude forward curves have both flipped into contango — a structure where future prices sit above spot prices.
In plain terms = contango tells you "there is too much oil right now; find somewhere to store it and sell later."
Some participants are evaluating onshore storage, but traders note freight rates remain too high for floating storage to work.
This means → when teapot refiners actually bottom out will be the pivotal test of whether Middle East crude demand in Asia can recover.
Content is for reference only, not financial advice.