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China oil hub Shandong urges refiners to make payments to govt risk fund

Oil prices fall


September 29, 2020 00:00:00


BEIJING, Sept 28 (Reuters): The tax office in China's Shandong province has urged refiners in the oil hub to make payments to a government risk reserve fund to cover periods when oil prices fell below $40 a barrel this year, in line with government policy.

Global oil prices held below that level for more than three months and the payments due are estimated to be in the billions of yuan.

Beijing set a policy in 2016 that required refiners to pay their profit margins to the central government fund whenever crude fell below $40 a barrel, which is the floor price for retail gasoline and diesel. If the payments are made, analysts say they would likely cut into the already narrowing margins of the mostly independently run plants and curb their appetite for crude imports for the rest of the year.

"All companies that are registered in Shandong, but not including Qingdao city, and produce or process gasoline and diesel are obliged to make payment to the risk reserve fund," the Shandong tax bureau said in a statement.

The central government has direct control of taxes in Qingdao.

Companies that choose to pay quarterly will have to submit payments for the first two quarters before the end of October and those that opt for annual payments will have to complete the process by the end of February next year, it said.

The fund aims to improve fuel quality, help firms to reduce emission and ensure the national oil supply, but analysts worry the payments will put a short-term burden on refineries.

"Refining margins have declined sharply since the third quarter due to tepid fuel demand. The fund collection is another pour of cold water," said Wang Yanting, Shandong-based analyst at consultancy JLC.

State refiner PetroChina 601857.SS said in August it would have to pay nearly 13 billion yuan ($1.9 billion) to the government fund for the first half of 2020.

Meanwhile, Oil prices fell on Monday as rising coronavirus cases spur concern about demand, with the main crude benchmarks on track for their first monthly falls since April.

Brent crude LCOc1 fell 32 cents, or 0.7 per cent, to $41.60 a barrel. US West Texas Intermediate CLc1 was at $39.89 a barrel, down 36 cents or 0.8 per cent.

"The rise in daily infections have accelerated and the total number is now very close to 33 million. The most impacted countries are the populous ones," PVM analyst Tamas Varga said.

"The speed with which the virus is spreading is the main concern for both health officials and financial investors."

Russian Energy Minister Alexander Novak said on Monday that the global oil market has been stable for the past few months and the demand-supply balance restored, but warned of the risks of a second wave of COVID-19 cases.

Despite efforts by the Organization of the Petroleum Exporting Countries and their allies to limit output, more crude is being exported from OPEC producers Iran and Libya.

"The increment in output is modest," BNP Paribas analyst Harry Tchilinguirian said of Libya's renewed exports.

"Even if Libya were to ramp up production quickly to the pre-blockade levels of 1 million barrels per day, in the short term, the crude oil may not readily find buyers."

OPEC Secretary General Mohammad Barkindo said on Sunday that commercial oil inventories in OECD countries are expected to stand only slightly above the five-year average in the first quarter of 2021, before falling below that level for the rest of the year.


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