China’s oil refining output surged in June to its strongest level in nearly two years, as processing plants roared back to life after seasonal maintenance to take advantage of significantly better profit margins for fuels like diesel.
This rebound in activity signals a robust operational phase for the country’s refining sector, with further strength anticipated in the coming months.
Refining output in the world’s largest crude importer rose to more than 15.2 million barrels a day in June, marking the most vigorous pace of processing since September 2023, according to Bloomberg calculations based on figures released by the National Bureau of Statistics (NBS) on Tuesday.
Compared to June of last year, refining volumes jumped by an impressive 8.5%, decisively reversing the declines that were seen in both April and May.
The daily processing rate also saw a significant month-on-month increase, climbing 8.8% from May to its highest level since September 2023, according to Reuters calculations based on the same data.
This ramp-up in activity was largely driven by improved refining margins and a decrease in idled capacity as plants completed their scheduled maintenance.
In June, refineries undergoing maintenance involved a total capacity of 107.7 million tons per year, a figure down by 22.2 million tons from May, according to Chinese consultancy OilChem.
Amy Sun, an analyst with GL Consulting, a think tank affiliated with Mysteel OilChem, noted that further strength is expected this month as new processing plants come online.
The diesel factor: profitability fuels state-owned refiners
A key factor behind the surge was the profitability of producing diesel.
Diesel cracks, a key measure of refining profitability, at independent refiners rose to nearly $18 a barrel at one point late last month, the highest level seen since 2023, according to data tracked by consultant JLC International.
This favorable margin environment was particularly beneficial for state-owned refiners.
Their run rates soared to nearly 84% of capacity at the end of June, the highest level in more than three months, as shown by JLC’s data.
State-owned refiners posted an impressive profit of 1,121 yuan ($156.40) per ton in June, a figure up 83% from May and a staggering 155% higher than a year earlier.
According to OilChem, this was achieved as crude input costs dropped by 306 yuan per ton while refined product prices rose.
In contrast, Shandong-based independent refiners, often referred to as “teapots,” saw their profitability squeezed slightly.
They earned an average profit of 355 yuan per ton from processing imported crude in June, a figure down 6.2% month-on-month, as rising feedstock costs outpaced the gains in their product prices.
The utilization rate at these independent refineries fell by 2 percentage points from May to 67.9%, while state-owned refineries’ utilization rose by 5.3 points to 79.95% in June, according to data from consultancy Sublime China Information.
Looking ahead, JLC projects that the average operating rate of state-owned refineries will reach around 83.5% in the third quarter, up 5.13 percentage points from the previous quarter and slightly higher than a year earlier.
Crude purchases and domestic production on the rise
The strong refinery output aligns with a reported increase in crude oil purchases for June, which hit their highest level since August 2023 on a daily basis, according to Bloomberg calculations.
This trend of high import volumes is expected to accelerate. In a recent note, Energy Aspects stated that China is anticipated to add as much as 140 million barrels of oil to replenish its Strategic Petroleum Reserves starting from later this year.
The NBS data released on Tuesday also showed that China’s domestic crude oil production in June rose by 1.4% from a year earlier to 18.2 million tons, which equates to 4.43 million barrels per day (bpd).
For the first half of the year, domestic crude output rose 1.3% to 108.48 million tons, or 4.38 million bpd.
Natural gas production also saw a healthy increase, rising 4.6% year-on-year to 21.2 billion cubic meters in June, with output in the first six months of the year up 5.8%, the data showed.
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