SINGAPORE/BEIJING - Chinese imports of fuel oil will drop further this year and next as reforms in the world’s No.2 economy allow more independent refineries to ship in crude oil as an alternative feedstock, traders and analysts said.

China is opening its crude oil imports to buyers outside the state-owned sector, with independent refiners so far getting the go-ahead to use a total of nearly 700,000 barrels per day (bpd) in crude imports, or about 11 percent of total crude shipments into the country.

With seven refiners already receiving the final greenlight to use imported crude oil and two of them granted licenses to import directly themselves, analysts expect fuel oil to be displaced quickly. Consultancy Energy Aspects said fuel oil demand could fall by 9 percent next year.

“Straight run fuel oil imports have dropped a lot mainly as teapot refineries are getting import licenses for crude,” said a trader with a Chinese state-owned company.

Small, independent refiners in China, often nicknamed ‘teapots’, prefer to process crude rather than fuel oil due to better refining economics and larger yields of high-value products such as gasoline and diesel.

China’s appetite for fuel oil, which is also used in shipping, has already been hit hard by a shift to natural gas and the nation’s economic slowdown, with the nation flipping into net fuel oil exports in July for the second month since 2006.

China imported nearly 1.1 million tonnes of fuel oil in July, it’s lowest volumes in a year, while its exports nearly doubled from June, customs data showed.

Demand has also been curbed as the government has raised the fuel consumption tax several times, keen to reduce China’s heavy use of energy and natural resources while addressing its severe pollution problems.

And appetite from shippers in China has also been fading, traders said.

“Fuel oil demand for shipping is also bad as trade has slowed down a lot,” said a Singapore-based bunker fuel supplier.

“They are also using larger vessels now so this affects prices as well.”

Cash premiums for straight run fuel oil have fallen by at least a third since the start of the year, a Singapore-based trader said.

Meanwhile, China’s imports of bitumen mixture, another type of heavy oil that can easily be blended into fuel oil, have also dropped. Companies had in the last two years switched to importing fuel oil declared as bitumen mixture to avoid paying consumption tax, but slowing demand and a clampdown by the government has curbed those imports, traders said.

It is now importing about 500,000 to 700,000 tonnes a month of bitumen mixture, compared with 1.5 to 2 million tonnes a month late last year, said a Beijing-based trader.