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China’s gasoline exports may surge, hurting Asian refining margins

The jump in China’s exports of gasoline in July is likely the start of a trend toward stronger shipments as refiners take advantage of plentiful quotas, better margins and lower crude oil costs.

China exported 1.56 million tonnes of gasoline in July, equivalent to about 428,000 barrels per day (bpd), and a gain of 74.5% from the same month in 2018, according to official data.

The figure was slightly below the record 463,000 bpd of gasoline exports in March, but was still well above June’s 283,000 bpd and 244,000 bpd in July last year.

Several factors contributed to the upswing in gasoline exports, but the key drivers were rising refinery throughput as new plants came online and struggling domestic demand growth in the face of soft new vehicle sales.

Looking to the current and coming months and July’s level of exports may be repeated as conditions remain favourable for Chinese refiners to export surplus production.

Chinese refiners receive government quotas to allow exports of refined products and given the modest level of shipments in the first half, they have ample allowances remaining for the rest of the year.

Refiners have about 450,000 bpd of gasoline exports quotas for the rest of the year, consultants JBC Energy said in a report on Aug. 26.

If these quotas are utilised, it would represent a substantial lift on the 334,000 bpd of gasoline exported in the first seven months of the year.

MORE CRUDE COMING
In a sign that Chinese refiners may export more refined products, their imports of crude oil look like being robust in August. Refinitiv estimated arrivals of 9.76 million bpd, up from July’s customs figure of 9.66 million bpd.

A shift toward imports of lighter grades of crude may also act as a spur to gasoline exports, given light crudes produce more gasoline and naphtha and less middle distillates, such as diesel and jet kerosene.

Some of the increase in light crude imports is unlikely to be sustainable, given that August’s imports from the United States are expected to be the highest since June last year.

These cargoes were likely booked during a brief respite in the extended trade dispute between the world’s two largest economies, but with China now imposing a tariff on imports from the United States, it’s likely the trade will evaporate again.

But China is also not getting as much crude as it used to from Iran and Venezuela, both producers of heavy crude and both under U.S. sanctions.

This means Chinese refiners will look for other suppliers, and more of these will be offering lighter crudes.

For example, Refinitiv vessel-tracking data shows that China is on track to import 411,000 bpd from Britain in September, the most since January and higher than the 265,000 bpd this month and July’s 132,000 bpd.

The likelihood of stronger gasoline exports from China in coming months may weigh on the profit margins of other refiners in the region.

The profit margin, or crack, from producing gasoline from Brent crude at a typical Singapore refinery GL92-SIN-CRK was $6.37 a barrel on Aug. 28.

This was down from the $9.35 a barrel peak for the year so far, reached on April 12, but higher than the trough of a loss of $2.85 in late January.

If Chinese gasoline exports do rise in the coming months, and concerns over the global economy’s health continue to mount, the likelihood is that Asian refiners will see the already modest profit margin on gasoline eroded further.
Source: Reuters (Editing by Richard Pullin)

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