China’s October fuel exports may touch 16-mth high, ease tight global diesel supply

China is likely this month to export the highest volume of diesel, aviation fuel and gasoline since June 2021 at more than 4 million tonnes, after Beijing’s surprise release of a big batch of quotas, analysts and trading sources said.

These exports, led by China’s state oil giants, could help ease a tight global gasoil market – where inventories ahead of the northern hemisphere winter are at multi-year lows – and add to already rising gasoline stockpiles.

China in late September issued a fifth batch of quotas, the biggest this year in a policy shift aimed at lifting sagging exports. The move brought the total export allocation for diesel, jet fuel and gasoline so far in 2022 to 37.25 million tonnes, on par with 2021.

The October exports will be boosted by higher jet fuel and diesel shipments as these reap the highest profits for refiners, estimates from Wood Mackenzie, Refinitiv and JLC showed.

The research and data consultancies pegged diesel exports this month at between 1.2 million and 1.55 million tonnes.

Wang Yanting, a researcher at JLC, estimated diesel exports could fetch a margin of nearly 2,000 yuan ($278) a tonne because of a rebate on a 13% value-added tax for overseas sales.

Despite the large volumes, industry sources still expect Chinese cargoes to face difficulties heading to Europe.

“Due to high long-haul freight costs, we do not initially expect to see significant volumes of Chinese barrels going to Europe,” said Esteban Moreno Cots, a Kpler Insight analyst.

October jet fuel volumes could hit as much as 1.5 million tonnes, said Refinitiv analyst Zameer Yusof, while JLC’s estimate is 1.68 million tonnes.

Most of the jet fuel exports in October so far are heading to Singapore and Hong Kong, Refinitiv data showed.

“There is still more incentive for export as China’s jet demand will continue to be depressed for the remaining of October because of limited domestic travels ahead of the (party) congress meeting,” said a source at a refiner based in northeast Asia. The source cannot be named because the person is unauthorised to speak with the media.

For gasoline, JLC estimates exports will hit 1.53 million tonnes in October. Other consultancies have the gasoline figure for October a little lower, while Wood Mackenzie puts the exports for the month at 1 million tonnes.

Refinitiv shipping data, however, shows China’s October gasoline exports have already more than doubled from September to around 1 million tonnes, despite lower profits GL92-SIN-CRK for the fuel that have some analysts lowering their estimates.

“Chinese majors may have already hedged before the quota release,” a Singapore-based gasoline trader said. That would mean they could export at lower profits and still make money in the over-the-counter paper market.
Source: Reuters (Reporting by Trixie Yap and Chen Aizhu in Singapore, and Mohi Narayan in New Delhi; Editing by Florence Tan and Tom Hogue)