Publications: Notes at the Margin

China's Threat to Refining Margins/Will Someone Love Big Oil? (January 28, 2019)


Few recognize the trouble that could come from the Chinese independent refiners affectionally known as the "teapots." The danger occurs because declining oil demand in China comes just when independent refining capacity there is increasing. The capacity growth has been financed primarily by debt, most likely supplied by China's alternative lenders. As demand slows, these refiners will turn to international markets, dumping products in Singapore, the Americas, or Europe to earn hard cash. In doing so, they could plunge the global refining industry into a serious recession and drive crude prices down sharply.


Meeting recently in Davos, Switzerland, with large investors and OPEC’s secretary-general, the CEOs of most large majors spoke of the need to improve their relationship with the market. They were not feeling the love, bemoaning instead the fact that the oil industry’s share in the S&P 500 had fallen to 5.5 percent from sixteen percent in 2008 (before the September collapse) and that the world is endangering its energy supply by not listening to them.


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