CNOOC To Import 50,000 Mt Of Gasoil, But Flow Unlikely To Be Sustainable: Sources
State-owned CNOOC will import 50,000 mt of gasoil for early November delivery into southern China, but the flow is unlikely to continue due to limited import quota availability amid high domestic prices, sources with knowledge of the matter said Oct. 25.
The November-delivery cargo will be rare as China did not import much gasoil directly in 2021 so far. Over January-September, there was only one MR-sized cargo of about 38,000 mt that arrived in May, while rest of the barrels were sent to bonded storage after discharge, according to data from General Administration of Customs, or GAC.
The move is to ease the recent gasoil supply shortage in the domestic market which has pushed the wholesale price to over Yuan 8,000/mt ($169.26) recently from about Yuan 5,500/mt in early September.
However, the import volume is unlikely to rise further as Beijing has only allocated a small part of its import quota for gasoline and gasoil, according to China-based market sources.
The exact volumes were not available but market sources said the government allocated 200,000 mt for gasoline and gasoil each in 2021, with the quota being shared by four state-owned oil giants — Sinopec, PetroChina, Sinochem and CNOOC. The sources added that Beijing is unlikely to add any new allocations to these quotas.
CNOOC in June used 50,000 mt of quotas to import gasoline, while Sinochem also imported several cargoes.
China used to increase blending material imports, such as light cycle oil, or LCO, for blending into gasoil, when import margins were good.
Gasoil versus LCO
The country introduced a consumption tax on imported LCO effective June 12, which limited imports of such blending material and encouraged import of fine products.
“LCO is offered at MOPS 10 ppm gasoil plus around $2.5/b, and by adding Yuan 1.52/liter consumption tax, the price is not competitive compared to fine gasoil anymore,” a private importer in southern China said, adding outlets of LCO narrowed to refineries in order to pass through the tax to gasoil barrels.
The LCO barrels that were sold directly as gasoil in the retail market, which importers typically did, attracted another Yuan 1.411/mt of consumption tax.
As a result, imports of LCO remained at a low level of 301,131 mt in September despite jumping 34.9% month on month, data from GAC showed. China’s LCO imports hit a record high of 2.08 million mt in April and slumped in the following months as Beijing imposed hefty consumption tax on the flow.
Chinaoil, a trading arm of PetroChina, is the leading LCO importer.
Domestic price rise start easing
China has been short of gasoil since September, during a typical peak season for gasoil consumption, despite power rationing this year that is estimated to reduce domestic demand by about 100,000 b/d, S&P Global Platts reported.
But the shortage is likely easing since the week of Oct. 17 as independent refineries’ gasoil price have stopped rising and some of them even started to offer with reductions.
Independent refineries are sensitive players in the industry due to their limited product outlets and smaller refining scales than their state-owned peers.
China is set to increase domestic gasoil supply as refineries have been lifting the barrel’s output yield, while exporting oil firms are set to limit their outflow to minimum levels as a response to Beijing’s call to ensure energy supplies and good domestic profit.
The country’s gasoil exports averaged 940,000 mt/month in the third quarter, according to GAC data.
S&P Global Platts Analytics on Oct. 20 estimated China’s gasoil output to increase by 240,000 b/d in Q4 from Q3.
In September, China produced 12.92 million mt (3.21 million b/d) of gasoil, data released by National Bureau of Statistics showed Oct. 21.