Home / Oil & Energy / General Energy News / China has helped drive up Asian diesel profits; it could lower them, too

China has helped drive up Asian diesel profits; it could lower them, too

China’s ongoing battles to contain COVID-19 outbreaks and the Western world’s shunning of Russian crude oil and refined products have pushed the profit of making diesel in Asia to record levels.

The profit on gasoil remains high by historical standards despite declines this month.

The profit margin, or crack, for making 10 ppm gasoil, the building block for diesel and jet fuel, at a typical Singapore refinery dropped to $36.29 a barrel on May 13, capping a second weekly decline.

But the price has come down from a record high of $48.96 a barrel that was reached on April 29 amid concerns about a shortage of the industrial transport fuel stemming from European boycotts of imports from Russia in the wake of Moscow’s invasion of Ukraine on Feb. 24.

The profit on gasoil is still more than double 2021’s peak of $15.64 a barrel and almost three times the level that prevailed at the start of this year.

The price of gasoil has also been boosted in Asia by a drop in supply of diesel from China, one of the region’s major exporters of the fuel.

Chinese refiners have been constrained by a lack of export quotas, weak domestic demand and earlier winter pollution curbs that have reduced refinery processing rates.

China’s refinery throughput dropped to the equivalent of 12.61 million barrels per day (bpd), data from the country’s National Bureau of Statistics showed on Monday.

April’s processing was the weakest since March 2020 and was down from 13.8 million bpd in March and 14.09 million bpd in April last year.

China’s diesel exports are likely to drop in May from April’s 447,000 tonnes, or about 110,000 bpd, according to data compiled by Refinitiv Oil Research.

Official data pegged diesel exports at 670,000 tonnes in March, which was the highest since September, and up from the recent low of 200,000 tonnes in February.

However, it’s worth noting that China’s diesel exports reached a 2021 peak of 2.8 million tonnes in March last year, and were still at 2.36 million tonnes in June, before trending lower rapidly.

China’s zero-COVID policy has resulted in Shanghai, the country’s major financial centre and a key port, being in some form of lockdown for the past two months, while other cities have also experienced restrictions.

While there are signs that restrictions may be eased in Shanghai, there are concerns that they are about to be tightened in Beijing, where outbreaks of COVID-19 appear to be spreading.

The risk for China’s fuel demand is that the country could suffer an ongoing series of lockdowns as attempts to contain the coronavirus stumble in the face of more transmissible variants.

Estimates vary as to how much the current lockdowns have lowered China’s domestic fuel demand, but it’s likely that up to 1 million bpd has been lost, or roughly 7% of the total for the world’s largest importer of crude oil.

Much depends on whether China can successfully contain COVID-19, and if it does, how quickly and in what form any stimulus spending will take.

BOOST REFINING
One way to quickly give a boost to economic activity is to allow refiners to import more crude and to export products surplus to domestic requirements.

If China returned to the levels of diesel exports seen in the first half of 2021, it would add about 500,000 bpd to Asia’s supply, which would go some way to lowering prices and the current sky-high profit margins for producing the fuel.

China’s economy isn’t the only uncertain factor in Asia’s markets for crude oil and refined products, with the status of Russian exports also key.

Russia is a major supplier of crude oil to Asia, especially to China, and increasingly India, which has moved quickly to snap up cargoes that are no longer being taken by Western refiners, especially those in Europe.

While Russia isn’t a significant player in Asia’s diesel market, it’s likely that Europe’s moves to end purchasing of Russian crude and products will result in European countries seeking to buy more diesel from refiners in Asia and the Middle East.

This means that the call on Asia’s diesel may remain high, even if China does return to the export market in coming months.
Source: Reuters (Writing by Clyde Russell; Editing by Bradley Perrett)

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping