China’s Refining Boom Collides with Rising Global Trade Tensions

China’s oil refining industry hit new highs in June, processing 62.24 million metric tons of crude, equivalent to 15.15 million barrels per day. This marks an 8.5% increase year-over-year and the highest output since September 2023, according to data from the National Bureau of Statistics.

While this may seem like a routine production boost, the timing is anything but ordinary. China’s refining surge comes at a moment when global trade tensions are intensifying, particularly between China, the United States, and Russia. As the energy market braces for possible sanctions, tariffs, and shifting alliances, China’s oil strategy is now directly tied to the world’s geopolitical landscape.

Why Is China Refining More Oil?

Several factors are driving the current uptick in Chinese oil processing, but profitability is at the core. In June, state-owned refiners like Sinopec and PetroChina dramatically increased production. They took advantage of falling crude prices while selling fuel at higher market rates, leading to robust margins.

Profits for state-owned refiners jumped to 1,121 yuan ($156.40) per ton, an 83% increase from May and 155% higher than last year, according to consultancy OilChem. The profitability spike was driven by a combination of lower feedstock costs and rising prices for fuel products.

Meanwhile, independent refiners—mostly in Shandong province—were left behind. Their profits fell by 6.2% compared to the previous month as crude costs rose faster than product prices, forcing them to reduce utilization while state-owned refineries expanded.

China’s Energy Strategy: Domestic Production Also Climbs

In addition to refining more imported crude, China also increased domestic oil production, producing 4.43 million barrels per day in June, up 1.4% from a year earlier. Natural gas output also climbed by 4.6% year-over-year.

This is part of Beijing’s broader energy strategy: build fuel reserves, refine at full capacity, and secure domestic production to reduce vulnerability to global shocks. With international supply chains strained and global prices volatile, China is positioning itself to maintain energy stability—at least for now.

What This Means for Global Energy Markets

China’s refining surge has global ripple effects, especially as fuel exports are expected to rise. The excess output will likely lead to more gasoline, diesel, and petrochemicals being shipped abroad, particularly into Asian and developing markets. This could push down regional fuel prices and intensify competition with other exporters like India and South Korea.

At the same time, China’s increased refinery runs will support global crude demand, helping absorb some of the market’s oversupply concerns. But the longer-term picture is uncertain, especially as global economic growth remains shaky and trade barriers loom.

The Trump Factor: How US Trade Threats Could Complicate China’s Plan

China’s refining expansion is happening in parallel with rising tensions between Beijing and Washington. Donald Trump’s recent proposals add new risks to this story.

Trump has threatened to impose:

• A 50-day deadline for Russia to end the Ukraine war, with the possibility of sanctions on countries that continue buying Russian oil

• A 30% tariff on imports from the EU and Mexico starting August 1, with additional threats aimed at China and other major trading partners

For China, this presents a serious dilemma. The country is currently the largest buyer of Russian oil, importing roughly 2 million barrels per day. If secondary sanctions are introduced targeting countries that purchase Russian crude, China could face financial penalties or new trade barriers that disrupt its supply chain.

There’s also the risk that Chinese fuel exports could be directly impacted by tariffs or trade restrictions. If US policy limits China’s ability to sell refined products internationally, state-owned refiners may find themselves with more output than they can export—leading to domestic oversupply and eroding margins.

A Shifting Energy Power Balance

China’s current strategy reflects its evolving role in the global energy system. No longer just a consumer of crude, China is now one of the world’s largest refined product exporters. This dual role complicates the global supply chain and places China at the center of both fuel markets and crude pricing dynamics.

In the short term, this could help stabilize global oil demand. But if the global economy slows or trade wars intensify, China’s expanded refining capacity could become a liability rather than an advantage.

Looking Ahead: Opportunity or Overreach?

China’s refining surge is a calculated move—one that aims to maximize profits and ensure energy security amid rising geopolitical risk. But the strategy comes with potential downsides.

If Trump’s proposed sanctions and tariffs materialize, China could face a double hit: disruptions to its crude supply chain and new barriers to selling its fuel products abroad. Meanwhile, global fuel markets may experience oversupply in some regions and shortages in others, depending on how trade routes adjust.

At its core, this is about more than just oil. China’s refining boom is a reflection of a new global reality where energy, trade, and politics are deeply intertwined. The next few months will reveal whether this surge is a sign of strength—or a setup for a new phase of economic confrontation.