China readies for reopening with huge quota for crude imports

China issued a generous quota for crude imports in a sign that its refiners are set to increase output as the nation moves away from Covid-Zero policy. 

The country will permit a total of 111.82 million metric tons of imports for 44 non-state owned refiners and traders in the latest batch, according to traders with knowledge of the matter. China sets a quota system under which independent refiners are given a certain volume to import oil in several allowances each year. 

As of this week, China has issued a combined 132 million tons of crude imports in two separate quotas for 2023. As of this time last year, the quota was 109 million tons. 

China’s oil demand is forecast to register meaningful growth from the second quarter as Covid infections begin to wane in bigger cities and as mobility returns to normal levels. Refiners may be able to tap into higher quota amounts by increasing output to feed energy demand. The oil market is closely watching China’s comeback, though futures activity has been muted early this year due to factors including thin trading, a supply surplus and concerns of a global recession.

Zhejiang Petroleum & Chemical Co. received the largest volume in the most recent import-quota batch, at 20 million tons. Hengli Petrochemical Co. received 14 million tons and Shenghong Group got 8 million tons. For a majority of independent refiners, as much as 70% of their annual allowances have now been issued, according to the traders, who asked not to be named due to internal policy.