China’s oil refiners cut back on crude purchases as weak demand hits margins

Chinese oil refiners, both state-owned and independent are slowing their crude purchases, particularly from sanctioned suppliers like Iran and Russia, as domestic fuel demand stagnates and profit margins shrink.

According to a report by Bloomberg, refiners from the world’s largest crude-importing nation have stepped back from the spot market, with independent processors known as “teapots” reducing intake due to lower refining profits and volatile global oil prices. The slowdown comes amid a broader backdrop of macroeconomic softness in China, where fuel price adjustments by regulators occur only once every 10 working days, delaying the industry’s ability to respond to sharp global price fluctuations.

Refining profits fall to multi-month lows

Margins for teapot refiners have now fallen to their lowest levels in nearly three months, as per data from industry consultant JLC Ltd, quoted by Bloomberg. While state-run refiners still operate at relatively higher margins, their profitability is also trending downward.

Independent Refiner Profit Margins – 2025

According to JLC data:

• Margins peaked in Q1
• Fell steadily through April and May
• Dropped below 100 yuan per tonne in June — a nearly 3-month low

This financial squeeze is prompting refiners to cut back purchases of discounted grades like Iranian Light and Russian ESPO crude, even as geopolitical risk premiums keep global oil prices volatile.

Floating oil stockpiles rise in Asia

Signs of sluggish Chinese demand are also evident offshore. As of Sunday, 33.9 million barrels of Iranian crude were held in floating storage, the highest since December 2023, according to data from Kpler Ltd, as reported by Bloomberg.

At the same time, floating crude volumes in the Malacca and Singapore Straits, key ship-to-ship transfer points have doubled in the past two weeks to 13.3 million barrels, another indication of low refinery drawdown.

Iranian oil discounts widen as demand dips

With Chinese refiners pulling back, sellers of Iranian crude have been forced to offer deeper discounts. According to market participants cited by Bloomberg, barrels from Iran are now trading at around $3 per barrel below Brent, with some offers dipping even lower.

Meanwhile, Russian oil, which had already seen price corrections earlier this year remained steady at around $2 per barrel above Brent, showing less pricing flexibility compared to Iran’s deeply discounted supply.

A pause or a pivot?

The cutback in Chinese spot crude buying comes at a critical time for global oil markets, which have been rattled by Middle East tensions, particularly in the Strait of Hormuz and Red Sea. However, analysts believe the current slowdown may be temporary and tied more to refining economics than long-term demand destruction.

If China’s domestic fuel consumption recovers in the second half of the year, buying could resume but for now, excess stockpiles and falling margins have left teapots and majors alike on thesidelines.

(With inputs from the agencies)