China is opening up its crude-import market to private companies quicker than expected as the government looks to ease an economic slowdown, according to the general manager of oil trader China Zhenhua Oil Co.
Allowing more private companies to import crude will help independent refiners increase output and boost revenue, China Zhenhua's Yuan Jun said in an interview. The government's next move will be to allow more exports of oil products, he said.
"The crude oil market is opening up faster than we anticipated," Yuan said. "By allowing more crude imports, we will see smaller refiners increase operating rates, thus contributing to more fiscal revenue."
Zhenhua, a unit of weapons manufacturer China North Industries Group Corp, has benefited from government reforms over the past decade that allowed smaller companies to import crude directly£loosening the grip of State oil giants such as China Petroleum & Chemical Corp.
As part of a broader plan to revamp State-owned enterprises, the government is also encouraging more private investment in the energy sector.
Smaller refiners, known as teapots, account for almost a third of the nation's processing capacity and 13 of them have been granted import quotas totaling a combined 55 million tons, or 18 percent of the country's annual imports. These smaller processors will need help from bigger players like Zhenhua to import crude, Yuan said.
"A sudden flood of dozens of rookie traders into the international oil market could cause huge volatility," said Yuan, whose company will trade an estimated 40 million metric tons of crude and related products this year. Some teapots lack experience buying crude in the international market and may need trading teams to help, he said.
The government may next allow more oil products to be exported, Yuan said. That may help refiners manage swelling stockpiles that follow the move to open the import market, he said.
Zhenhua may apply for an oil product export license by the end of year and is considering taking minority stakes in some local refining and chemical companies.
"After the policy breakthrough, no matter whether you are State-owned or not, we all compete in the same market environment," Yuan said.