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Allowing independent refiners to import could boost demand

China’s Ministry of Commerce announced today that it will grant licenses to two independent refineries to directly import crude oil as the country works to allow more room for independent players in its oil and gas markets, reports Economic Times. Up until now, about 90% of China’s crude imports have gone to state-controlled majors like Sinopec Corp (ticker: SNP).

Beijing has already widened the pool of companies to which it will award quotas for imported crude, starting early this year to boost private participation in the oil sector ahead of a planned launch of a crude oil futures contract. The contract, which will trade on the Shanghai Futures Exchange (SHFE), will be priced and settled in yuan, according to a report from Reuters.

Most of the quota winners for the crude oil imports will have to work with a state-affiliated trading company as an agent for any shipments, but Shandong Dongming Petrochemical Group and Panjin Beifang Asphalt Fuel Co have already been approved for licenses to import crude on their own, according to a statement from the ministry’s website.

Allowing independent refiners to import crude oil could help to increase demand in the world’s second largest oil consumer. “The granting of more crude import quotas to the independents is likely to provide further support to crude imports and exert more pressure on fuel oil imports towards year-end, with the impact expected to be more pronounced in 2016,” Wendy Yong, an analyst with energy consultancy FGE, told Reuters.

FGE expects China’s crude imports to rise by 10% in the second half of 2015 compared to the first six months, with shipments to be up by 7% both this year and next.

China’s crude imports hit a record 6.17 MMBOPD in 2014, a gain of nearly 10%. In the first five months of this year, the imports then rose more than 4% compared with a year ago to reach 6.5 MMBOPD.

Chinese independent oil refineries often act as the country’s swing producers of refined products. Because they do not have access to crude oil feedstock, they are forced to import lower-quality fuel oil to turn into gasoline and diesel.

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