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Sources say that Shandong province in China has increased the fuel oil import tax exemptions for certain refineries.

Industry sources reported this week that the provincial government of Shandong in China, China's refinery hub, increased the fuel oil import tax exemptions for six independent refining companies to improve their profitability, as they struggled with low margins due to fuel demand and high fuel prices.

Three sources who have direct knowledge of this matter confirmed that the Shandong provincial office of taxation increased the consumption tax refunds for independent refiners (also known as teapots) on gasoline and diesel refined using imported fuel oil from 75% to 95%.

Sources said that the change is applicable to Chambroad Petrochemicals and Hongrun Petrochemicals.

One of the sources said that the refiners had been notified two weeks prior.

Requests for comments were not responded to by the Shandong Provincial Tax Service or the National State Taxation Administration.

When crude oil prices are too high, the teapots will often process straight-run fuel oils or bitumen blends (a tar-like residue) into transportation fuels. They may also be subject to crude oil import quotas which can limit their purchases.

China increased the import tariffs for fuel oil in 2025, and reduced the tax rebates at the end last year. Customs data shows that fuel oil imports fell to their lowest level ever between January and May.

Mia Geng, FGE's associate director of the East of Suez Oil Service, said in a note dated June 27, that independent refiners were suffering from low profit margins and shut downs due to the rules. The provincial government also likely wanted refineries to be running more to boost economic output and industrial activity.

Geng believes that the new tax laws will increase the demand for high-sulfur fuel oil and the run rates of refineries.

The changes will not spur demand for fuel oil in the near future, as crude oil is cheaper at the moment, according to a trading source, and one of those with direct knowledge about the change.

Shandong refineries are China's largest buyers of sanctioned Russian and Iranian oil.

(source: Reuters)