navigating China's oil value chain from crude to fuel oil

Sick of tracking isolated signals under the fast-changing market volatility and complex policy landscape? Nowadays, a siloed view without a systematic value-chain conception can leave critical blind spots. 

 

While refining capacity growth is moderating, changes to the import quota regime are reshaping access to feedstocks-with independent refiners facing tighter controls and integrated players gaining ground. These shifts not only affect energy supply security, but also cascade downstream into processing economics and utilization rates. 

 

The era of extensive capacity expansion is over. China's refining strategy has shifted toward structural optimization-phasing out obsolete units, enhancing integration, and aligning with an increasingly diverse fuel demand profile.

State-owned and large integrated refiners are emerging as profit leaders, supported by feedstock consolidation and downstream synergies. In contrast, independent refiners are under pressure from tighter regulations, rising compliance costs, and narrowing margins-prompting a shift toward petrochemical upgrades and leaner operations.

These shifts in capacity utilization and processing strategy directly shape product yields and supply balances-critical inputs into downstream market behavior.

 

The slowdown in gasoline and diesel demand is not a result of lackluster macroeconomy lull but rather a reflection of accelerating structural substitution. Rising EV penetration and the growing use of LNG as a transportation fuel are steadily eroding the market share of traditional fossil fuels.

Jet fuel shows signs of recovery as travel rebounds, but the overall product balance is increasingly shaped by non-fossil alternatives, environmental goals, and trade policies.

Export policy, meanwhile, has become a dynamic balancing tool- navigating between domestic surplus control, environmental performance metrics, and tax rebate optimization. This adds complexity to profit forecasting and trading portfolio planning.

 

 

 

The diverging fate of China's feedstocks tells a story of strategic realignment.

Naphtha is scaling up-supported by the "less fuels, more chemicals" transition. Demand for ethylene and PX feedstocks remains structurally supported, yet domestic supply gaps are widening, especially for high-quality light naphtha-necessitating sustained imports.

In contrast, fuel oil faces structural decline. Regulatory pressures, decarbonization targets, and decreasing demand for deep processing are pushing the market into long-term surplus. Though LSFO retains a niche role in the bonded bunkering sector, it is insufficient to offset the broader downtrend.

 

 

Margin structures across Chinese oil industry chain have polarized-widening the spread between resilient and vulnerable segments.

 

 

 

In this Special Report White Paper series, hot topics of the value chain will be touched on-from crude import quotas and refinery operating rates to end-use substitution dynamics, petrochemical feedstocks and policy evolution path, framing a systematic overview of Chinese oil industry chain.

This Special Report conducted by our consulting team not only facilitates tactics responding to the short-term market changes, but forming a strategic understanding of the Chinese oil market.