China’s smaller, independent oil refineries have slashed production to levels not seen in nearly a decade. The culprit is a brutal combination of elevated crude prices and weakening domestic fuel demand that has turned every ton of oil processed into a money-losing proposition.
The average operating rate for independent refiners in Shandong province, the heartland of China’s so-called “teapot” refinery sector, dropped to roughly 50% in early May 2026. That’s down from about 55% just a month earlier.
The math doesn’t work
China’s teapots are currently losing an estimated 500 to 600 yuan, roughly $74 to $88, on every metric ton of crude they process.
These independent refiners are smaller facilities, many clustered in Shandong province, that have historically survived by importing discounted crude, often from sanctioned sources. When those discounts narrow or disappear, their already-thin margins evaporate entirely.
