The Shandong tax bureau has asked refiners operating in the Chinese oil processing hub to pay to a government risk reserve fund. The fund covers periods of oil prices below $40/barrel this year. Global oil prices fell to below that level for over three months in 2020, and the payments are estimated to reach billions of yuan. The move is in line with the central government’s policy announced in 2016, whereby refining firms are required to pay their profit margins to the fund every time crude prices fell below the floor price for retail diesel and gasoline at $40/barrel.
Analysts said that the payment would further narrow Shandong independent refiners’ margins which, in turn, could reduce their appetite for imports through the end of 2020. The provincial tax office said refiners which opted to pay quarterly needed to complete the payment before the end of October, while firms choosing to pay annually will have to pay by the end of February 2021.
The fund is aimed at ensuring the national oil supply, improving fuel quality and helping refiners to cut emission. However, there is concern that such payments will add a short-term burden on refineries. Tepid fuel demand has already squeezed refining margins in China. State-refiner PetroChina last month said that it would have to pay nearly CNY13 billion ($1.9 billion) to the fund covering the period of January-June.
