China issues 5 mil mt oil product export quotas in third batch of 2022: sources

China has issued 5 million mt (39.75 million barrels) of quotas in its third batch for exporting gasoline, gasoil and jet fuel in 2022, indicating slim outflows from country in the third quarter, sources with close knowledge about the matter told S&P Global Commodity Insights on July 6.
The new allocation takes the total quota volume to 22.5 million mt so far for 2022, 40.2% lower than the 37.61 million mt awarded in the three batches of 2021, data from S&P Global showed. The government issued only three batch of quotas for gasoline, gasoil and jet fuel in 2021.

Beijing is keen to cut the country's oil product exports to ensure domestic supplies and fight against global inflation with crude prices fluctuating at high levels. The new allocation comes after the government end-June restated to freeze any upward adjustment in the ceiling for gasoline, gasoil retail prices and introduced refining subsidies when its reference price of a crude oil basket hovers over $130/b, S&P Global reported earlier.

"To ensure domestic supplies, we have to sit on high oil product by capping exports and subsidize refineries to sustain production as freezing retail prices discourage refining activities," said a government official and added that crude prices are volatile and may possibly hit the trigger.
At 4:30 pm Singapore time (0830 GMT), the September ICE Brent crude futures contract was down $9.22/b (8.1%) from the previous close at $104.53/b, while the NYMEX August light sweet crude contract fell $9.42/b (8.6%) at $100.64/b.

Domestic demand recovery

Oil demand was seen recovering as Beijing end-May issued 33 measures to boost economy, which have taken effect gradually in June, including removing travel history restrictions and stimulus for infrastructure development. As a result, domestic demand for gasoline and jet fuel are set to rebound as family travel is likely to improve during the summer vacations over July and August, analysts said, backed by rising ticket prices for flights.
Meanwhile, the country's manufacturing sector returned to expansion territory with the PMI at 50.2 in June, after contracting for three straight months. Gasoil demand is expected to climb amid a recovery seen in the manufacturing and construction sectors.
Platts Analytics estimates China's oil demand to jump by 10% or 1.4 million b/d in July-September from the second quarter.
"China's oil product exports are set to stay at low levels in Q3, given domestic demand recovery and low quota allocations," a Guangzhou-based analyst said.

More quotas?

Market sources and analysts' views on further quota allocation for 2022 were mixed, despite agreement on a slump in China's oil product exports this year.

The country's oil product exports collectively fell by 51.9% on the year to 10.35 million mt (544,920 b/d) over January-May, official data showed. Since end-June, there have been market discussions about China exporting about 1.11 million mt (285,000 b/d) of oil products in July despite oil companies holding fresh quotas in hand.
The government in early-June issued just 4.5 million mt of oil product export quotas, which were named as supplementary quotas, but in fact were the second batch of allocation, according to the market sources.
"Even with second batch of allocation, oil companies slashed their exports to below 2 million mt in July, suggesting their cautiousness of using the quotas. They actually have abundant capacity to lift production and make more money by exporting if there is no quota restriction," a Singapore-based analyst said.
A Beijing-based analyst meanwhile said, if the oil companies keep the same pace of export of about 1-2 million mt per month, the quotas are enough for them for the rest of the year.
"All depends on crude prices," a second Beijing-based analyst said, "if crude prices soften to a comfortable level, say below $80/b, oil product exports can rise as the risk of shortage in domestic supply eases."
Refiners with the quota holders told S&P Global they do want more quotas as export margins are strong, while trading sources expect the extra quota volume could be just few million tons.
Platts Analytics estimated China's oil product exports to stand above 26 million mt (566,000 b/d) with further allocation.
The country exported 40.31 million mt (878,000 b/d) of gasoline, gasoil and jet fuel exports in 2021, felling 11.9% year on year, official data showed.

China's oil product export quota allocation (million mt)

Source: market sources