March 31, 2026 [Reuters]- Chinese smaller independent refiners are expected to cut crude processing rates in ‌April following a sharp rally in sanctioned oil prices and still weak fuel demand in the country, traders and analysts said.

The so-called teapot refiners had benefited in recent months from cheap stocks of Russian and ​Iranian crude, but temporary U.S. waivers allowing purchases of Russian and Iranian oil stranded at ​sea for 30 days have driven prices for those barrels sharply higher as buyers, ⁠especially Indian refiners, rush to secure supply.

Run rates for teapot refineries, which are highly ​sensitive to margin swings, were likely to fall to about 50%, after recovering to around ​55% in February and March, said Energy Aspects’ senior analyst Sun Jianan.

Spot premiums for ESPO Blend for April and May shipments swung to about $8 a barrel against ICE Brent from a discount of about $8 before the U.S.-Israeli war with ​Iran, traders said.

The discount for Iranian oil delivered to China for the next two ​months, meanwhile, is now level or only a little below ICE Brent, from more than $10 before the ‌war began ⁠on February 28.

CRUDE PROCUREMENT DELAYED

With discounts evaporating and Brent crude futures surging, teapots have delayed crude procurement plans, with few inquiries for cargoes arriving in April and May, traders said.

Faced with narrowing margins as Beijing caps fuel prices despite rising crude prices, the independent refiners are expected to curb ​output while they ​wait for more clarity ⁠on the market outlook, traders added.

Shandong teapots’ low-cost inventories could last until late April although refineries facing capital pressure may be forced to ​cut run rates earlier, Zhang Yuxin, a refined products analyst at ​research firm ⁠Horizon Insights said in a report.

Fuel demand from end-users has remained weak amid high prices, Zhang said.

China’s state planner, the National Development and Reform Commission, raised on March 23 the maximum retail ⁠prices for ​gasoline and diesel by 1,160 yuan ($168) per metric ton ​and 1,115 yuan per ton, respectively. The increase was the largest on record, but still lagged the broader rise ​in crude prices.