REFINERY MARGIN TRACKER: Chinese economy shows positive signs of growth but margins remain negative

New York — The Chinese economy is beginning to show positive signs of recovery from the coronavirus pandemic but the country's refining margins remain in negative territory as exports of gasoline and gasoil lag, an analysis from S&P Global Platts showed Oct. 20.

China's 4.9% rise in third-quarter GDP from the second quarter's 3.2% shows promising growth as the country shows success in containing the spread of the coronavirus, but high oil stockpiles and weak demand has capped refined-product exports and kept refining margins low.

Arab Heavy coking margins for Chinese refiners averaged minus $1.91/b for the week ended Oct. 16, while Arab Light margins averaged minus 77 cents/b, according to S&P Global Platts Analytics.

Coking margins for Russian ESPO were also negative, averaging minus 84 cents/b for the week ended Oct. 16 as a weak global economic outlook continues to weigh on oil product exports, the value of which, according to data from China's General Administration, are down 0.8% for the first three quarters of 2020 compared with 2019.

Gasoil exports helped by harvest demand

However, state-owned PetroChina's 180,000 b/d Liaoyang refinery located in the Liaoning province in the northeastern part of the country expects gasoil exports to remain stable in October at about 600,000 barrels, unchanged from September, as harvest demand kicks in. The refinery runs mostly ESPO delivered by pipeline.

PetroChina's 410,000 b/d Dalian refinery – also in the Liaoning province – expects October gasoil exports to grow by 16.7% over September to reach about 2.1 million barrels.

Despite the pull from agricultural demand, refiners have found it difficult to sell gasoil within China due to a nationwide surplus.

Although China has no air travel restrictions within the country, jet fuel demand around the world continues to lag, cutting export demand and increasing distillates as refiners add jet to the distillate pool.

Gasoline demand seen picking up

The Dalian refinery is expected to increase its October gasoline yield and cut back on exports as domestic demand for the transportation fuel increases as more people go back to work. The country's unemployment rate fell to 5.4% in September, near prepandemic levels of 5.2% in December 2019.

Dalian expects to sell about 1.69 million barrels of gasoline on the domestic market in October while cutting exports by 20% from September levels to about 2.1 million barrels.

However, China's 200,000 b/d West Pacific Petrochemical Corp – also in the Liaoning province – plans to cuts crude rates to 59% in October, and cut exports and eliminate jet fuel exports all together.

The plant will continue to export gasoline and gasoil, but total exports will be down 29% from September, with October gasoline exports expected at 1.18 million barrels and gasoil exports at 1.05 million barrels.

China's Shandong independent refineries are also seeing weaker gasoline margins, market players said, as inventories start to rise after early October's week-long National Day Holiday, when an estimated 600 million people travelled. Cracking margins for Oman crude averaged minus $1.35/b for the week ended Oct. 16, compared with the minus $1.09/b the week earlier, Platts Analytics margins show.

Despite this increase, Shandong refiners are expected to run at 70% of capacity in October, which includes the expected restart of the Dongming refinery after 45 days of planned work.

Overall, Platts Analytics forecasts China's oil demand to trend lower year on year by 250,000 b/d in the fourth quarter.