After Olympics binge, China reverts to fuel exports

SINGAPORE (Reuters) - China will slash gasoline and diesel imports to nearly nil this month, ending months of record-high purchases that filled domestic stocks to the brim just ahead of the Olympics, trade sources said this week.

The abrupt halt in imports, which had lent support to global fuel markets during a summer of otherwise lackluster demand, threatens to add more pressure to tumbling global prices as they may point to weakening growth from the world's No. 2 consumer.

Chinese state importers PetroChina (0857.HK) and Sinopec Corp (0386.HK) are likely to either halt or sharply cut diesel imports this month, having racked up all-time high volumes of just below 1 million metric tons in July.

PetroChina skipped gasoline imports and instead booked 60,000 metric tons to export to term customer Pertamina in Indonesia, putting an end to its bumper petrol imports since May.

Including volumes from export-focused WEPEC, China's gasoline shipments abroad rose to 150,000 metric tons this month versus an estimated 90,000 metric tons in August.

Sinopec bought just 90,000 metric tons of the auto fuel, down from China's total gasoline imports of 210,000 metric tons last month.

"The import reduction is due to high inventory and poor downstream margins," said U.S.-based independent analyst Paul Ting.

Diesel inventories held by China's two top oil firms surged by a quarter during July to stand at nearly double year-ago levels as the country stocked up for the Olympics, a newsletter owned by the official Xinhua agency reported this week.

Saddled with bloated stockpiles, China's top 12 refineries, which account for more than a third of total capacity, will trim crude processing rates in September to 2.41 million barrels per day (bpd), a recent Reuters survey showed.

The refiners ran at about 2.49 million bpd in August, down from a record of 2.56 million bpd in June last year.

Small-scale teapot plants that make up nearly one-fifth of China's capacity were said to be running at only about half capacity, with fixed domestic fuel prices still too low to encourage them to rev up operations with oil above $100.

"Wholesale prices of both gasoline and diesel have been falling, so there is no incentive for refineries to keep running at high rates when the market is oversupplied," said one fuel distributor in Guangdong, who declined to be named.

Wholesale diesel prices fell to 7,200 yuan ($1,052) a metric ton from around 7,600 yuan ($1,111) a few weeks back.

ECONOMIC SLOWDOWN

On top of the high refining runs, demand for diesel and fuel oil may be easing in line with China's slowing economic growth.

The country's manufacturing sector contracted in August, a survey of purchasing managers showed. The official purchasing managers' index stood at 48.4 in August, unchanged from July, the China Federation of Logistics and Purchasing said this week.

Those are the only two months that the survey has fallen below the boom-bust line of 50 since its public launch in 2005.

Petrol usage also weakened as Lehman Brothers estimated that China's passenger car sales fell 10 percent in August from a year ago, the second such fall in the past five years, due to the impact of the Olympics and weakening consumer confidence.

Lehman added in its report that auto sales in China, the world's second-largest car market, would remain lackluster for the rest of this year and possibly into early 2009, suggesting a possible slowdown in the rise in fuel consumption.

The impact is already clear on the Asian spot market, where cash gas oil trading in Singapore tumbled last month to a discount of more than $4 a barrel, its lowest in at least a decade, as China's demand dissipated. GO-SIN-DIF

Imports of residual fuel into the world's second-biggest energy user are also falling. China has bought only half a million metric tons of fuel oil so far in September.

($1 = 6.84 yuan)

(Editing by Jonathan Leff)