China's teapot refining hub seeks to stop crude quota trading

SINGAPORE, Aug 4 (Reuters) - China’s Shandong province stepped up efforts to curb fuel production by ordering independent refineries to promise not to trade crude oil quotas, according to three industry sources and a document reviewed by Reuters.

The move follows a crackdown by Beijing in April which found several independent refiners had traded quotas, including selling quotas to plants not registered to process imported crude, defying efforts to ease a fuel surplus that has hurt state-owned refiners’ profits.

That led the government to reduce a second batch of quotas issued in June and cut imports by the world’s largest oil importer.

The independent refiners, known as teapots, handle roughly one fifth of China’s crude imports.

The provincial government of Shandong province, China’s independent oil refining hub, asked 30 refiners to each sign a letter of guarantee by the end of Wednesday pledging that they will neither resell their crude import quotas nor try to purchase such allocations.

“This is to safeguard crude oil market order ... and ensure stable fuel supplies,” according to the document dated Aug. 3.

A Shandong government official involved in implementing the regulations declined to comment.

The refiners were also asked to promise not to resell or relocate older processing units they earlier pledged to demolish in order to be qualified to process imported crude oil, according to the document and two of the sources.

“The government has stepped up checks on teapots in recent months, inspecting whether they have shut old units as promised, whether they are operating at the capacity previously agreed with the government,” said an official with one Shandong-based refiner.

China, the world’s top crude oil buyer, manages its crude oil imports via a quota system, issuing permits several times in a year.

Beijing is widely expected to issue a third batch of quotas later in the year, after having granted 65% of the total quotas so far.

Reporting by Chen Aizhu and Florence Tan; Editing by Sonali Paul