Analysis: China's March gasoil exports could touch 11-month highs as inventory pressure builds

Singapore — Chinese refineries plan to further boost gasoil exports in March to about 2.3 million mt in a bid to offset inventory pressure while enjoying improved outright prices in Asia, refiners and traders told S&P Global Platts March 1-3.

China's five oil product quota holders -- Sinopec, PetroChina, CNOOC, Sinochem, Zhejiang Petroleum & Chemical and Norinco -- are likely to export 2.29 million mt of gasoil in March, rising from about 2 million mt in February and would be an 11-month-high since hitting 2.57 million mt in April 2020, information collected by S&P Global Platts showed.

Sinopec is expected to contribute the most to the increase, despite it gradually shutting a total 26.5 million mt/year of capacity into maintenance since late February.

A few Sinopec refineries have lifted their March gasoil exports by 20,000-30,000 mt from volumes taken in February while most of the rest have kept their plans stable, information collected by Platts showed.

These refineries boosting gasoil exports include Guangzhou Petrochemical, Shanghai Petrochemical and Hainan Petrochemical.

"The barrels have nowhere to go, so that [the refinery has] to export them," a source with Sinopec's Guangzhou Petrochemical said on March 2.

As a result, Sinopec's gasoil export plan was set at 1 million mt in March, up 28.2% from its plan for February, according to market sources.

High domestic stock

Gasoil stock levels were notably high in China due to high throughput in February and weak consumption over the Lunar New Year period.

The four key state-owned oil refineries' utilization was at a seven-month high of 82.8% in February while private refineries kept their runs stable from January.

Gasoil consumption dropped in February across construction, industry, mining and transportation sectors due to the holidays, which accumulated high stocks.

"Not only stock of the on-spec gasoil is high, but also LCO [light cycle oil] inventory," a fuel trader said, and added that LCO stock in southern China was more than 1 million mt -- sufficient to meet more than a month's consumption in the area.

"Exporting is to ease stock pressure to sustain domestic fuel prices while demand gradually recovers as economic activities resume since late February after holidays," a Beijing-based analyst said.

The National Development and Reform Commission lifted on March 3 China's retail ceiling price for gasoil by Yuan 250/mt ($5.19/b), effective March 4, to better reflect international crude price changes in the last 10 working days.

Good regional margins

"There are a few reasons for this [higher exports] ... the domestic situation is one thing. In addition, margins [in the region] are quite good now, especially on a flat price basis," said a regional trader based in Singapore.

A firmer sentiment was reflected in strengthening cash differentials for the assessed Asian ultra low sulfur diesel benchmark grade for loading from Singapore, which averaged plus 1 cent/b to the Mean of Platts Singapore gasoil assessments in February. This compared with the minus 21 cents/b to MOPS gasoil assessments averaged over January for the ULSD grade, Platts data showed.

The FOB Singapore 10 ppm sulfur gasoil physical crack against front-month cash Dubai crude -- a measure of the product's relative strength to crude -- averaged $6.99/b in February, strengthening 35.2% from the $5.17/b averaged in January, Platts data also showed.

Sentiment in the Asian gasoil market has firmed on the back of steady demand, which has come even as supply balances continue to be constrained.

Trading sources said with the exception of China, export volumes have been slender from other major north Asian gasoil supply centers of Japan, South Korea and Taiwan.

The coming refinery turnarounds and previously announced refinery closures also may decrease regional gasoil supplies.

Supply has tightened in recent weeks due events such as the severe winter storm in the US, which indirectly helped propel sentiment for the Asian gasoil market higher, while a regular flow of newbuild VLCCs have also been draining Asian gasoil barrels out of the region Westward, traders said.