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UPDATE 2-China gives companies 'urgent notice' in oil import probe

(Adds industry, analyst comment)

SINGAPORE, May 27 (Reuters) - China gave five state-owned companies until Thursday to report on their historic use of imported oil as part of a broader effort by the world’s largest oil importer to control shipments as domestic supplies swell.

In an “urgent notice” dated May 25 and reviewed by Reuters, the National Development and Reform Commission (NDRC) requested that Sinopec Group, China National Offshore Oil Corp (CNOOC), Sinochem Group, ChemChina, and China North Industries Group provide years’ worth of information on their crude usage since they began importing.

Specifically, the companies must say whether they have resold crude to other companies in China and whether their imports have been processed at refineries under a tolling scheme that reduces the companies’ tax payments.

The NDRC did not respond to a request for comment.

It was not immediately clear why the government is examining the state-run companies’ imports. They are not subject to crude import quotas even though they regularly supply crude to independent refiners that are bound by quotas.

The information request is part of a broader overhaul the Chinese government began early this year to tackle a growing domestic fuel surplus and lost tax revenues, partly because of unchecked flows of imported crude oil to refiners that are outside the quota system, two senior oil trading officials in Beijing said.

It also follows a separate NDRC inspection in April of independent refiners in the eastern province of Shandong focused on plants that pledged to close ageing, inefficient facilities in return for winning import quotas, Shandong-based industry sources said.

That inspection also covered usage of import quotas, as several independent plants in Shandong were found trading off quotas to refiners not qualified for processing imported crude, said the sources.

China has since late 2015 allowed more than 40 independent refiners to process imported crude under a quota system, but smaller plants have been found to be sourcing additional crude oil and other feedstocks, such as diluted bitumen, beyond quota limits, leading to a domestic supply overhang.

One official, who requested anonymity because he was not authorised to speak to the press, said he expected some companies would have their quotas cut because of the series of inspections.

China is expected to issue a second batch of crude quotas towards late June.

The investigations could slow independent plants’ imports in the second half of 2021 as many are running out of quotas, consultancy Energy Aspects said, adding that could weigh on prices of crudes popular with independent refiners, such as Russia’s ESPO blend and Oman.

“The return of Chinese buying will be driven by state-owned majors as their crude stocks are already lower year on year,” Energy Aspects said in a note to clients on Wednesday. (Reporting by Shu Zhang, Florence Tan and Chen Aizhu; Additional reporting by Roslan Khasawneh; Editing by Clarence Fernandez, Christian Schmollinger and Barbara Lewis)

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