China's oil product exports likely flat in Feb, to jump in Mar as coronavirus dampens domestic demand

Singapore — China's oil product exports are likely to be flat in February, compared with January, as there was not much room to make changes to planned exports, but volumes are expected to rise significantly in March given the extremely weak domestic demand due to the outbreak of the coronavirus, or Covid-19, market sources said this week.

"We don't expect a heavy product outflow from China in February as export plans have been fixed with most cargoes sold in January. Refineries balanced the market with a sharp reduction in throughput rather than oil product exports in this month," a Singapore-based trader with a Chinese state-owned oil company said.

S&P Global Platts' survey of ten key exporting refineries showed that their average export plan was 0.6% lower in February than in January and 2.5% higher than in December 2019, taking into account that a few refiners, such as PetroChina's Wepec and Guangxi Petrochemical, had additional volume added to their original export plans in late February.

China did not release trade data for January. Its latest data showed total exports for gasoline, gasoil and jet fuel at 5.27 million mt in December, according to data from General Administration of Customs.

The average run rate at China's big state-owned oil companies -- Sinopec, PetroChina, CNOOC, Sinochem -- fell to around 67% in February, from 85% in January, S&P Global Platts' survey showed.

Meanwhile, the independent refineries in Shandong had also reduced their average operating rates to 35%-36% this week from 63.5% in January, with 15 refineries idle in February. Independent refiner Hengli Petrochemical (Dalian) had also reduced its run rate to 90% in mid-February from 108%, while the newly started Zhejiang Petroleum & Chemical became the only refinery in China to keep its utilization rate unchanged.

As a result, China's throughput is likely to fall to around 10 million b/d in February, according to Platts estimates. The country processed 13.98 million b/d in December, data from the National Bureau of Statistics showed.

RISE IN MARCH

In March, oil companies would have more flexibility to plan their exports, together with throughput reductions, in such a way so as to balance the domestic market, trading sources and analysts said.

"A significant increase in exports will be seen in March because it will take a long time for domestic demand to recover, [at least] until the spread of the coronavirus stops completely," the Singapore-based trader said.

With deep cuts in crude runs coupled with an even bigger decline in demand, S&P Global Platts Analytics expects China's gasoline exports to reach nearly 450,000 b/d, or 1.64 million mt, in March. In contrast, the historical high for gasoline outflows was 523,000 b/d in November 2019.

Meanwhile, jet fuel exports are forecast to reach over 400,000 b/d, or 1.57 million mt, in March despite an expected 10% reduction in crude runs in the first-quarter.

Gasoil would surge to some 680,000 b/d, or 2.83 million mt, in March from the record high of 652,000 b/d in March 2019.

For 2020 as a whole, Platts Analytics sees China exporting close to a quarter million b/d more of these three products combined over 2019 as a result of weakened demand at home.

JET UNDER MOST PRESSURE

"Among these three products, jet fuel is the one with most difficulty finding homes as demand for the fuel is bad anywhere," a second Singapore-based trader with a Chinese oil giant said.

As a result, Chinese refineries are expected to cut jet fuel output by raising gasoil production, resulting in more gasoil available for export, he added

"Therefore, gasoline would be the one with the least export pressure, estimated [export] volume slightly higher than 1.5 million mt in March, while gasoil [exports] may hit record high," the second trader said.

"China's jet fuel demand slumped at least two-thirds this month, with more than 10,000 flights canceled every day," a Tianjin-based aviation industry source said.

"Jet fuel demand is bad not only in China, but also in the region. Exporting jet fuel is more like moving from domestic storage tanks to those overseas or bonded storage," a Beijing-based analyst said.

Sinopec's Shanghai Petrochemical was reported to have planned to export 90,000 mt of jet fuel in February, but 60,000 mt of the barrels were sent to bonded storage tankers in southern China Hainan, awaiting buyers.

Month to-date, the Singapore jet fuel/Dubai cracking margin averaged at plus $9.29/b since the start of February, down $1.80/b from January's average of $11.10/b, Platts data showed.

The cracking margin has fallen to as low as $8.24/b on February 19, Platts data showed. At this level, it was 2 cents shy of the year to-date low of $8.22/b recorded on January 31, 2020.

Moreover, a source with PetroChina's Guangxi Petrochemical said it was difficult to find a clean tanker to ship jet fuel out of China due to the weak market. "We want to export an MR-size cargo of jet fuel at end-February, but can only find a smaller [ship] for 10,000 mt," the source said.