With domestic oil prices in a downward spiral, Shandong's refining companies are facing severe financial losses. In response to this challenging environment, Sinopec recently took the lead in establishing China's first Fuel Oil Association. The initiative aims to unite oil companies during this "winter" period, helping them collectively navigate the difficult market and move away from the previous reliance on importing fuel oil alone.
"At the moment, refineries that have been allocated crude oil quotas don't know whether to laugh or cry," said He Weidong, general manager of a fuel oil sales company from Guangdong, with a hint of humor. According to reports, due to rising crude oil prices and relatively low refined oil selling prices, many refineries that once struggled to secure limited crude oil quotas now find themselves in a losing position. They end up making deals that result in significant losses.
What worries local refineries is that although the import price of fuel oil has dropped from last year’s peak, the prices of domestic diesel and gasoline have fallen even more sharply. “Not only is processing crude oil unprofitable, but even processing imported fuel oil leads to losses,†said an executive at a Shandong-based refinery. Currently, large-scale losses are being experienced across the Shandong ground refining sector. In such a tough time, the formation of the Fuel Oil Association is seen as a positive development.
Shandong is the largest fuel oil-consuming province in the country, with an annual demand of 22 million tons, while the total national demand is only 40 million tons, according to Sun Fuyong, president of the Shandong Fuel Oil Association. Fuel oil, which is a byproduct of crude oil refining, is not only hard to process into refined products but also comes with high energy consumption, costs, and poor quality. However, local refineries in Shandong are restricted from importing crude oil themselves and must rely on Sinopec for their crude oil allocations. With limited crude oil quotas, these companies are forced to import large volumes of fuel oil from abroad just to stay afloat.
“Currently, most refineries are solely importing fuel oil from overseas, which artificially inflates oil prices by ‘middlemen.’ Some smaller companies struggle to negotiate better prices due to their limited import volumes,†Sun Fuyong explained. The establishment of the Fuel Oil Association provides a platform for resource sharing and market collaboration. More importantly, it will facilitate trade negotiations with countries like Russia, Venezuela, Brazil, Colombia, Indonesia, and oil fields in the Middle East and the North Sea. This cooperation is expected to improve the allocation of petroleum and fuel oil resources in Shandong, allowing for bulk purchases of fuel oil to stabilize supply and lower costs for refining companies.
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