Column: China's run of strong diesel, gasoline exports poised to end

A crude oil tanker is seen at Qingdao Port, Shandong province, China
A crude oil tanker is seen at Qingdao Port, Shandong province, China, April 21, 2019. REUTERS/Jason Lee/File Photo

LAUNCESTON, Australia, March 9 (Reuters) - The flood of Chinese diesel and gasoline into Asia's markets for refined products is set to slow sharply in March, as the world's second-biggest economy starts to consume more fuel domestically.

Official customs data showed that flows of refined products remained elevated in the first two months of the year as refiners took advantage of fresh export quotas and relatively strong regional profit margins.

China exported 12.96 million tonnes of refined oil products in the first two months of the year, according to customs figures released on March 7.

China releases combined commodity trade data for January and February to avoid distortions created by the variable timing of the week-long Lunar New Year holiday, which began on Jan. 21 this year.

The preliminary data released this week doesn't provide a breakdown by product, but using BP's conversion factor of 8 barrels of products per metric tonne gives a figure of around 1.76 million barrels per day (bpd) of fuel exports in the first two months.

This is actually a slight acceleration from the fourth quarter of 2022, when customs data showed around 1.59 million bpd of products were shipped from China.

China is a swing supplier of refined fuels to Asian markets, and the volumes exported are dependent on quotas granted by Beijing, in what is a largely opaque system that appears more related to domestic policy considerations than the dynamics of regional supply and demand.

China's exports of diesel and gasoline were weak in the first half of 2022, but picked up in the second half as Beijing increased export quotas, most likely as a quick and easy way to boost economic activity and the profitability of its refining sector.

Exports have continued at high levels in January and February, with Refinitiv Oil Research estimating shipments of diesel at 446,000 bpd in the first two months of the year.

China's exports of gasoline were estimated by Refinitiv at about 152,000 bpd in the first two months of year, declining from the pace seen in the fourth quarter as domestic demand increased as the country re-opened after ending its strict zero-COVID policies.

However, exports of both fuels may drop in March with Refinitiv forecasting diesel shipments of just 120,000 bpd, which would be a nine-month low.

Gasoline exports are also likely to slide in March, with Refinitiv estimating shipments at around 82,000 bpd.

Improving domestic demand, planned refinery maintenance and lower profit margins in regional product margins are the main reasons that China's exports of diesel and gasoline are expected to drop sharply this month.

China diesel exports vs Singapore gasoil crack


The question is whether this will lead to a tightening of supply and higher prices in Asia.

Much will depend on whether other fuel exporters to the region pick up the slack, and also whether there is an increased call on cargoes from Asia by buyers in Europe, which has now sanctioned imports of refined products from Russia.

There are signs of rising exports from India amid strong refinery processing rates, and also from Middle East producers such as Saudi Arabia and the United Arab Emirates.

India's diesel exports were 470,000 bpd in February, the most since December 2021, according to data from commodity analysts Kpler, while its gasoline shipments were about 314,000 bpd, the most since April last year.

Certainly, the profit from producing both diesel and gasoline at a typical refinery in Singapore has yet to show any substantial rise in response to expectations of lower Chinese exports.

The margin on producing gasoil , the building block for diesel, ended at $23.51 a barrel on Wednesday, down from $25.06 the prior day and also below the peak so far this year of $38.89 on Jan. 25.

The profit on gasoline ended at $13.32 a barrel on Wednesday, down from $13.52 the prior day and below the high so far this year of $18.32 from Jan. 26.

The opinions expressed here are those of the author, a columnist for Reuters.

Editing by Kim Coghill

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Clyde Russell is Asia Commodities and Energy Columnist at Reuters. He has been a journalist and editor for 33 years covering everything from wars in Africa to the resources boom and its current struggles. Born in Glasgow, he has lived in Johannesburg, Sydney, Singapore and now splits his time between Tasmania and Asia. He writes about trends in commodity and energy markets, with a particular focus on China. Before becoming a financial journalist in 1996, Clyde covered civil wars in Angola, Mozambique and other African hotspots for Agence-France Presse.