China has called for the closure of smaller, so-called "teapot" refineries in the country by the end of next year, but some of the facilities may instead increase their capacities, even as domestic demand slows, according to a new report by energy and ocean transport adviser Poten & Partners.

A few years ago, the Chinese government mandated the closure of dozens of refineries with a capacity less than 40,000 barrels per day (bpd) as a method of slowing overheated growth in the market, but now some plant owners plan to boost their production above that threshold to continue operating.

The attractiveness of the small refineries is also in doubt due to new capacity additions in the country and a slowdown in demand, which has resulted in a drop in refinery utilisation to about 82 percent.

The teapot refineries help alleviate product shortages when margins are strong, but on average their utilisation rates are only around 40 percent.

"With China's potentially slower oil demand growth trajectory, the current refinery capacity expansion plans of the Chinese majors already pose a threat to domestic and international refining margins," the report says.

"Entrenched teapot refiners looking to expand would only add to these woes."

Historically, teapot refineries have boosted import demand for fuel oil because Beijing has restricted their access to crude oil.

In June 2012, industry news organization China Oil Trader reported that small refiners account for about 2.6 million bpd, or about a fifth of China's oil refining capacity, and that shutting them down would shift significant demand from fuel oil to crude oil, affecting global oil markets.