China April oil exports seen falling as pandemic erodes global demand

Singapore — China is poised to cut oil product exports in April as lockdowns across the world to limit the coronavirus pandemic sapped global demand, according to refiners, traders and analysts.

State-run refining giant Sinopec sees limited oil product exports in Q2 compared with the same period last year as the number of willing buyers in the international market dwindled following the pandemic, Sinopec's Senior Vice President Ling Yiqun said last week.

One of its units Guangzhou Petrochemical has cut its jet fuel exports further by 70% to around 30,000 mt in April from normal level of 100,000 mt/month, according to a company source.

Another state-owned integrated oil and gas giant PetroChina slashed its April exports from March for its refineries, including cutting a half to 60,000 mt from its Liaoyang Petrochemical and 22% reduction to 350,000 mt from its exporting-oriented West Pacific Petrochemical Corp. or Wepec.

Moreover, its subsidiary Guangxi Petrochemical, which exports up to 370,000 mt/month, planned to suspend exports and extend its shut down despite the 50-day maintenance that finished end-March. The refinery exported 290,000 mt and 325,000 mt of oil products in February and March, respectively, during the maintenance.

Sinochem Quanzhou Petrochemical was also said to reduce its product exports.

A Singapore-based market observer said that China's gasoline exports loading slowed down in the second half of March to about 760,000 mt compared with 950,000 in H1 March, suggesting the declining trend began as the pandemic spread.

Exports outlook

China's gasoil exports are set to drop to about 2 million mt in April from 2.6 million mt a year ago, while gasoline outflow would drop to about 1 million mt compared with 1.18 million mt last April and from a record high of 1.84 million mt in November, a Beijing-based analyst said, who sees the possibility of jet fuel exports reducing to halve amid lack of demand.

Meanwhile, S&P Global Platts Analytics' Asia Head Kang Wu expected China's combined gasoline, gasoil and jet fuel exports to average at around 1.34 million b/d in the second quarter, unchanged from Q1 2020 and Q4 2019.

"[That is] because Chinese refiners have desire to export more products to balance domestic runs but the volume are capped by poor regional margins," he said.

China's combined exports of the three products stood at 9.12 million mt, or 1.2 million b/d, over January-February, up 31.4% on the year due to low basis in the same period of 2019, data from General Administration of Customs showed.

Market widely estimated the country's gasoline and gasoil exports in March to have hit highs of about 500,000 b/d and 600,000 b/d, respectively, as an effort to lower domestic inventory.

Domestic margins

With the number of fresh COVID-19 cases under control in China, the country's economic activity resumed slightly to support fragile domestic demand.

"Not 100% recovery yet but sales increased from February and early March," a domestic product trader said.

Moreover, "it is better to sell products domestically as the prices are regulated which lock refining margin, even though we need to pay the Price Adjustment Risk Fund. But there is no floor for price in overseas on a supply glut amid curtailed demand," a source with a Sinopec exporting refinery said.

Under China's current oil product pricing mechanism, the government sets retail gasoline and gasoil ceiling prices every 10 working days, in line with international crude prices, while they are in a range of $40-$130/b, unless the resulting price change is less than Yuan 50/mt or under exceptional circumstances.

When the basket of crude price falls below $40/b, oil product producers are required to pay the additional earnings from the higher oil product price due to the suspension of the price adjustments. The amount will be injected into the government's Price Adjustment Risk Fund quarterly, according to the current pricing mechanism.

The state-owned Sinopec and PetroChina paid the additional earning over January-April 2016 when crude price fell below $40/b.

Persistent regional supply glut

In contrast, regional demand in Asia is slated to fall further this week with more stringent containment measures: Vietnam's major cities Hanoi and Ho Chi Minh City are preparing for a possible lockdown; Singapore schools and most workplaces will shut for one month from Tuesday; Thailand's six-hour night curfew became effective last Friday.

The physical FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures fell to minus $10.69/b at the Asian close Monday, just shy from the record low of minus $10.74/b, Platts data showed.

Lockdowns have also pushed out more gasoil barrels into the Asian market. Only from India, gasoil volumes for loading over April jumped to around 862,000 mt, four times that of the South Asian country's offer of 201,000 mt for March-loading, according to Platts observations.

For jet fuel, market participants expect rising stocks amid the global lockdowns, leaving traders with little choice but to look for floating storage as land-based storage becomes scarce.