China’s gasoline and gasoil exports are likely to remain muted in June as Beijing is hesitant to release oil products export quotas in large quantities because of the government’s strong focus on domestic energy security in the wake of surging oil prices, market analysts and refinery trading sources told S&P Global Commodity Insights.

Beijing is keen to keep the country’s oil products exports to a minimum as its top priority is to secure ample supply at home to meet rebounding domestic demand amid easing COVID-19 restrictions, said a feedstock trading strategist at a state-run Chinese petroleum and chemicals company.

Surging Asian middle distillate cracks have encouraged major refiners in South Korea and India to ramp up fuel exports, but Chinese refiners have been unable to capture the lucrative margins, the strategist said.

The physical FOB Singapore gasoil crack spread against Dubai swaps is on course to reach a record quarterly high after averaging $33.84/b as of June 1 in the second quarter, up sharply from an average of $19.30/b over Q1, S&P Global data showed.

Most analysts surveyed by S&P Global said that China’s June gasoline exports could be capped at 800,000 mt, or 227,000 b/d, with one analyst expecting the shipments to reach 1.3 million mt, or 325,000 b/d. China exported gasoline volumes of about 412,000 b/d in June 2021.
June gasoil exports are projected at around 75,000 b/d, with one analyst forecasting shipments of about 250,000 b/d, compared with exports of 587,000 b/d a year ago and an average export volume of about 101,000 b/d over January-May.

Beijing’s priority is to stimulate the Chinese economy and achieve positive Q2 gross domestic product growth by ensuring stable domestic supply of fuels, rather than generate big earnings by selling oil products in the international market, a Beijing-based analyst said.

China’s top economic planner National Development and Reform Commission’s Vice General Director Zhao Chenxi said May 31 the country’s main oil and gas enterprises are maintaining high oil products inventories to serve domestic demand and stabilize retail prices.

Limited export quotas

The Chinese refining industry is eagerly waiting for the government to release new batch of oil products export quotas. Market participants had expected Beijing to hand out around 3.5 million mt, or 26.3 million barrels of supplementary quotas for gasoline, gasoil, and jet fuel exports before end-May. Platts Analytics had also expected Beijing to release more oil products export quotas as refiners grapple with high inventories due to a slow recovery of domestic consumer and industrial fuel demand.

However, there is still no official confirmation on the new export quota allocation, further raising the case for low June middle distillate exports amid limited export quota availability.

The government would closely monitor domestic fuel demand recovery following the gradual easing of the COVID restrictions, but if the consumption falls short of Beijing’s expectations, the authorities might perhaps consider releasing supplementary export quotas, said a market analyst at a state-run Chinese oil company. The analyst declined to be identified due to the sensitive nature of government policies.

China slashed gasoline, gasoil, and jet fuel exports by 51.7% year on year to 8.59 million mt over January-April and the industry is currently left with about 4.4 million mt of export quotas, official data showed.

If the government requests state-run refineries to significantly lift their throughput in June to propel industrial activity and GDP growth, oil products exports need to rise in tandem to offset any buildup in excess fuels inventory as domestic demand recovery could lag with the zero-COVID policy still in effect, a Beijing-based analyst said.

Analysts expect China’s oil demand to grow around 4% month on month in June as the mega city Shanghai eased COVID restrictions after a two-month lockdown, and Beijing May 31 released 33 detailed business support measures to boost the economy.

However, cross regional travel is expected to be limited as standard COVID control measures remain in place, likely leading gasoline and gasoil demand to decline by single digits year on year in June, while jet fuel consumption could be around 30% below the year-ago level, analysts said.

Source: Platts