China is poised to export a lot more fuel as Beijing strives to boost its economy by raising refinery runs amid flagging local consumption.
Some 15 million tons of fuel-export quota is expected to be released, according to industry consultants JLC and Energy Aspects Ltd. The allocations will allow the four big state-owned refiners and one private processor to sell more gasoline, diesel, jet fuel and fuel oil to overseas buyers at a time when frequent virus lockdowns and a property crisis have suppressed local demand.
The move will prompt refiners to crank up operating rates with state-run companies considering raising utilization by 10%-15% next month, according to industry consultancy FGE. Chinese majors will need to raise run rates to 90%, from 75% currently, and increase crude imports by at least 1 million barrels a day to use up all the quota by end of this year, Energy Aspects said.
The export-friendly shift is a reversal from China’s recent focus on only refining to meet its own needs in order to minimize pollution and help consolidate the sprawling industry. The increase in shipments will be welcomed across Asia and the world this winter as power generators turn to diesel and fuel oil amid surging gas costs due to the war in Europe.
The size of the quota, which Bloomberg reported last week, took the market by surprise. Traders said the release is large for this time of the year, although it’s unclear if companies will be able to fully utilize their allocations by the end of 2022. There will likely be 10 million tons of quota for gasoline, diesel and jet fuel, said Energy Aspects, with very-low sulfur fuel oil accounting for the remaining 4.5 million tons.
A 10-million-ton quota increase for so-called clean fuels will accelerate exports through year-end, which coincides with rising demand for heating fuel in the run-up to winter. As of July, export allocations for gasoline, diesel and jet fuel exports were 40% less than at same point last year.
The increase in quota is likely aimed at boosting economic activity in China, traders said. The International Energy Agency has forecasted the country, the world’s largest importer of crude, faces the biggest annual drop in oil demand in more than three decades. The agency predicts consumption will fall by 420,000 barrels a day, or 2.7%, this year, the first decrease since 1990.
Of the 15 million tons of quota, it’s likely that China Petroleum & Chemical Corp. will get 5.6 million tons, according to JLC. PetroChina Co. will probably receive 4 million tons, CNOOC Ltd. and Sinochem Group Co. will likely be awarded 2.4 million tons each and private refiner Zhejiang Petroleum & Chemical Co. should get 600,000 tons, the consultant said.