2. China cuts initial non-state crude import quota awards

China has awarded its first batch of crude import quotas to independent refiners and trading firms for 2019, enabling the companies to start planning their purchases and production levels this year.

The commerce ministry (MoC) has granted nearly 656mn bl (1.8mn b/d) of non-state crude import quotas to 58 companies in its first batch of quota awards. This is down by around 26pc compared to the first batch of awards in 2018, although the full-year 2019 quota is expected to increase.

The MoC in September set the 2019 crude import quota for non-state trade at 4.04mn b/d, up by more than 40pc from 2018. The quotas are typically awarded in several stages. The initial batch this year accounts for just 44.5pc of the total — down from 92pc in the first awards last year — suggesting the second batch of 2019 quotas will be much larger.

The biggest recipients are independent refiners, but the size of the quotas granted has fallen by almost 30pc from the initial award last year. The government has awarded nearly 614mn bl of quotas to 44 independent refinery operators with total capacity of 4.9mn b/d, based on the amount of crude the firms imported in 2018.

The import quotas account for just 34pc of the refining capacity operated by independents. This may prompt the refiners to actively purchase crude in the first few months this year as they look to use up their quotas in order to be able to apply for more import rights.

No firms received awards covering more than 80pc of their total import quota in the first batch. The biggest single quota was granted to state-controlled ChemChina with around 68mn bl, equivalent to about 35pc of the firm's total refining capacity.

Around 20 refiners have been granted quotas covering 50pc or less of their permitted import levels, with 31 receiving quotas that cover less than half of their total refining capacity. Some independent refineries operated at low utilisation rates last year after stricter tax inspections and a weak products market hit their margins.

Two major private-sector plants — the Zhejiang Petroleum and Chemical (ZPC) refinery in Zhoushan led by Rongsheng, and Hengli Petrochemical's new refinery in Dalian — have each been awarded quotas for only 29mn bl, well short of their respective 400,000 b/d refining capacities. Hengli started trial operations in December. The first batch of quotas, together with existing inventory, would only be enough to support operations for around four months at full operations.

Hengli and ZPC will are entering an already well supplied market, so the reduction in the total quotas awarded in the first batch may reduce pressure on independents to use up more sizeable quotas and give them more flexibility to adjust operations.

China imported 9.14mn b/d of crude in January-November, up by 8.3pc from the same period a year earlier. The MoC also awarded 42mn bl of crude import quotas to 14 trading companies for 2019.

Part C: Transaction Summary

Since 2018/3/26 and up to 2019/1/4 closing, Shanghai crude oil futures’ cumulative trading volumes is 54. 48 million lots, and the cumulative trading volumes of the first month of listing (2018/3/26-2018/4/25) is 1.33 million lots. The cumulative amount of transaction is 26.04 trillion yuan (2018/3/26-2019/1/4), which is 45.92 times that of the cumulative amount of the first month of listing.

Average daily turnover of the main contract is 476,605 lots (2019/1/2-2019/1/4), and average daily turnover of the main contract is 478,770 lots (2018/12/24- 2018/12/28). Open interest of all the contracts of crude oil futures of INE also rised steadily, with 3,558 lots on 2018/3/26 and 68,944 lots after the closing of 2019/1/4.