China is likely to boost exports of oil products in early 2023, to support the economy

(Reuters) – Chinese refineries are likely to boost exports of refined oil products in the last two months of 2022 to early 2023 after receiving the largest allocations from Beijing this year, trade sources and analysts said on Monday.

The increase in Chinese exports is likely to help stabilize global oil markets and partially offset supplies from Russia, which will be subject to an EU embargo in the coming months.

It also allows the world’s No. 2 refiner to take advantage of spare refining capacity and boost exports when its economy struggles to grow after avoiding a second-quarter contraction and the yuan’s slump to a 14-year low.

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“Increased product exports from China will greatly support energy-hungry oil markets as there are concerns about an imminent EU ban on Russian supplies,” said Suganda Sachdeva, Vice President of Commodity and Currency Research at Religare Broking.

Sachdeva said an increase in exports amid declining consumer demand would also support the troubled Chinese economy.

Quotas include 13.25 million tons of refined products – usually gasoline, diesel and jet fuel – and 1.75 million tons of low-sulfur marine fuel. Read more

The new version, the largest single allocation for 2022, takes the combined total allocations for diesel, gasoline and jet fuel from 2022 to 37.25 million tons, on par with 2021.

Customs data showed that between January and August, China exported about 16.4 million tons of refined fuel, of which 7.56 million tons were gasoline, 5.54 million tons were jet fuel and 3.25 million tons were diesel.

China’s exports of refined oil products fell in 2022 as Beijing reduced the issuance of export quotas

Consulting firm FGE estimated that the refiners had about 7 million tons of quotas remaining from the previous four batches by the end of September.

“Besides the new quotas, the refiners had more than 20 million tons of quotas for the fourth quarter,” FGE analysts said in a note.

FGE said refiners will likely need to ramp up exports to nearly 2 million barrels per day during November and December to meet the allotment, but high freight costs and a weak gasoline export margin could prevent refiners from fully benefiting from quotas by the end of the year.

Citi analysts said monthly Chinese exports could double to 4-5 million tons in November and December.

Analysts said that Chinese refineries are also expected to increase diesel exports the most because they make the highest profit compared to gasoline and jet fuel, which could limit domestic supplies.

Refining margins in Asia plummet after China issued the largest batch of oil product export quotas in 2022

“The seasonal tightening in the domestic gas oil market will limit the upward trend of gas oil exports until the second half of November,” FGE said. China’s diesel demand increased seasonally in the last quarter of the autumn harvest and the lifting of the fishing ban.

Local consultancy Longzhong estimates showed that Chinese refineries, especially state-owned refineries, will have to increase production to at least 82%, and teapots to about 60% if they are to use 80% of the quotas issued by the end of the year.

Ding Shu, an analyst at Longzhong, said operating rates by state refiners and teapots were at 75.87% and 57.54%, respectively in late September, insufficient to meet the growing domestic demand and meet the quota of 15 million tons.

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Additional reporting by Mohi Narayan in New Delhi and Moyo Chu in Singapore; Additional reporting by Matthew Che. Editing by Florence Tan and Ed Osmond

Our criteria: Thomson Reuters Trust Principles.

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