Chinese Refiners Suspend October Fuel Exports, Citing Supply Security Concerns
China’s Fuel Export Suspension and Its Global Impact
By Trixie Yap, Siyi Liu and Chen Aizhu
Background and Recent Export Restrictions
SINGAPORE, Oct 1 (Reuters) - Chinese refiners have suspended exports of oil products to regions beyond Hong Kong and Macau until further notice from Beijing, four people briefed on the matter said on Thursday, a move that will further crimp war-constrained fuel markets.
Beijing restricted fuel exports in March following the outbreak of the U.S.-Israeli war on Iran that disrupted Middle Eastern crude supplies to the world's top importer, before relaxing those curbs between July and September.
Actions by State Oil Majors
As China looks to safeguard domestic supplies, state oil major PetroChina on Wednesday cancelled a handful of gasoline and jet fuel shipments that were planned for October, three of the sources said. It had committed to most of these now-cancelled deals in the past two weeks, the three said.
The sources spoke with Reuters on condition of anonymity because the were not authorised to speak to media.
Government Policy and Export Management
Beijing has been managing export volumes every month to control fuel supplies, but China started a week-long holiday on Thursday without giving major refiners in the world's largest refining hub a green light to export fuel products to regions outside of Hong Kong and Macau during the month of October.
Global Market Repercussions
Global markets are grappling with the loss of supplies from war in the Middle East and Ukraine's attacks on refining infrastructure in Russia, and China's move could drive prices in some countries to new highs.
International Political Context
China's pause comes less than a week after President Xi Jinping’s visit to Washington, where President Donald Trump urged him to help stabilise global supplies of fuel. US Energy Secretary Chris Wright said the world has lost diesel exports from the Middle East and China, with Washington expecting announcements soon from Europe about new diesel supplies.
Domestic Supply Security Prioritized
Uncertainty over crude availability and a drop in local fuel inventories prompted Beijing to focus on supply security, trade sources said.
"China's priority has always been domestic energy security, thus even in the midst of visible increased crude buying, this does not necessarily translate to increased product exports," said June Goh, a senior analyst at Sparta Commodities.
Diesel Margins and Industry Response
Market Reaction
DIESEL MARGINS RISE
Expectations that Chinese export supply will be absent caused Asian diesel refining margins to rebound on Thursday to their highest in a week at roughly $76 a barrel, with the October-November price spreads trading at a two-week peak.
Refiner Activity During Holiday
Another major refiner, privately controlled Zhejiang Petrochemical Corp (ZPC), skipped scheduling any oil product shipments during the holiday week, the fourth source said.
PetroChina, ZPC and the National Development and Reform Commission did not immediately respond to a Reuters request for comment amid the holiday break.
China’s Refining Capacity and Export Trends
China has the world's largest refining capacity but its fuel export volumes have typically lagged behind India and South Korea among Asian processors.
Future Outlook
It is not clear if Beijing would resume permitting refiners' exports after the holiday ends on October 7, the sources said, adding that it could depend on domestic fuel inventories and refining output.
Recent Export Data
Since July, Chinese refiners had ramped up exports after Beijing gave the green light to ease export restrictions, with gasoline, diesel and jet fuel exports in August totalling 4.58 million metric tons, according to Chinese customs data.
For September, 1.4 million tons of diesel, 500,000 tons of gasoline and at least 2 million tons of jet fuel, including bonded volumes to Hong Kong and Macau, have been loaded, trade estimates showed.
(Reporting by Trixie Yap, Siyi Liu and Chen Aizhu; Editing by Clarence Fernandez, Florence Tan, Thomas Derpinghaus and Tom Hogue)
