China last week issued a second batch of crude oil import

quotas under the so-called "non-state trade" that is

higher than for all of the allowances in 2016, but

allotments to independent refineries were lower than a

year earlier.

The lower grants to the independents dealt the new group

of crude oil buyers another blow because they were already

barred from exporting refined fuel, squeezing margins in

an oversupplied domestic fuel market.

The Ministry of Commerce approved 22.92 million tonnes to

32 companies, against 29 recipients in the first issue for

2017, according to a document dated June 14 and viewed by

Reuters on Monday.

The 32 companies included mostly independent oil

refineries, also known as teapots, and some state-run

companies.

That latest quotas take the total issued this year to

91.73 million tonnes, compared with 87.6 million tonnes in

2016. The second batch will be valid until year-end.

Volumes for the 19 independent oil plants that make up two

thirds of the total issues for 2017 dropped by 12.36

million tonnes, or nearly 17 percent, from last 2016.

"The message is pretty clear: the government is tightening

the screws as the industry is heavily oversupplied," said

a Beijing-based trading executive who deals with

independents.

"Those who have not played by the rules, under-using

quotas for instance, are taking a bigger cut."

Four independents -- Baota Petrochemical, Wonfull

Petrochemical, Haiyou and Chambroad -- took the deepest

cuts, between 43 percent and 90 percent, according to data

Reuters compiled based on official documents.

Uncertainties over the time and the size of issues have

led some independents to scramble for purchases, resulting

in brimming fuel stocks and port congestion.

"We are rushing to buy as much crude as we can because we

thought the government is going to issue second batch of

quotas based on the volumes (used) in the first half of

the year," said a trader with Shandong Wanda Group, owner

of Tianhong Chemical.

"That led to higher running rate as we don't have enough

storage ... and in turn a glut of refined products."

The Ministry of Commerce did not immediately respond to

request for comment.

Company officials at five independent refiners told

Reuters that they have received a second batch of crude

import quotas.

Beijing approved the oil quotas under the "non-state

trade" designation, so they do not include state-owned oil

companies Sinopec, China National Petroleum Corp, Sinochem

Group, China National Offshore Oil Corp and Zhuhai

Zhenrong Corp

The increased quotas buoyed the price of Oman crude on the

Dubai Mercantile Exchange to its narrowest discount

against Dubai swaps in four sessions. China buys most of

Oman's crude output.