Chinese fuel glut to worsen as refiners raise rates

China's largest energy company is predicting that domestic refineries will raise their operating rates in 2016, further exacerbating a fuel glut and boosting exports of the surplus.

In its annual research report issued Tuesday, China National Petroleum Corp. (CNPC) says refiners will increase oil processing by 5.3%.

The net export of oil products should rise by 31% in 2016 to 25 million tons, according to the report. Meanwhile, net crude imports will increase 7.3% to 357 million tons.

Smaller independent refiners, known in the industry as teapots, will account for the majority of the increase in refining this year as the country's bigger state-owned processors reduce production, CNPC said. Most of the teapots are clustered around the eastern Chinese province of Shandong.

Overall Chinese oil consumption will rise 4.3% to 566 million tons this year, the report predicts, with imports satisfying 62% of total demand. China has 495 million barrels of oil storage capacity, consisting of 180 million for strategic petroleum reserves and 315 million for commercial use.

As the domestic economy recorded its slowest expansion in 25 years in 2015, China exported a record amount of diesel, kerosene and gasoline and for the first time shipped more products abroad than it imported.

Additionally, China's crude purchases rose to a record in 2015 as the country sought to fill its strategic oil reserve and the government finally allowed the teapot refiners to buy foreign supplies.