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China’s Hengli Petrochemical has cancelled recent purchases of West African and Middle Eastern crude oil and slashed its refinery operations as inventory runs low, trade sources said.
The independent refiner cancelled deals for at least 6 million barrels of non-Iranian crude, reversing a recent push to buy mainstream oil and escape U.S. sanctions.
The company recently shut down a major distillation unit and reduced the refinery operating rate to 50 per cent capacity because it cannot find non-sanctioned oil to replenish its stocks.
The sudden cancellations have blindsided the market because major refiners rarely default on deals on short notice.
To minimise sanction risks for its partners, Hengli had routed these purchases through a complex supply chain involving multiple trading firms.
Traders warn that these abrupt cancellations could severely damage the company’s reputation and ruin its trading team’s hard work to get back into the mainstream market.
The U.S. government slapped sanctions on Hengli in April for allegedly purchasing Iranian oil, a charge the refiner denies.
Although Washington recently lifted sanctions on Iranian oil for 60 days as part of an interim peace deal, Hengli’s supply issues continue to cripple its output.
The refinery’s current 50 per cent operating rate marks a steep decline from the 70 per cent capacity it maintained earlier in June and the 80 per cent capacity it recorded in May.
