China to allow transfer of fuel oil export quotas to gasoline, gasoil, jet fuel: sources

China is likely to allow oil companies to increase gasoline, gasoil and jet fuel export volumes by deducting an equal volume of available fuel oil export quotas for 2021, sources with knowledge about the matter told S&P Global Platts on Oct. 26.

The move will help oil companies ease the shortage of quotas for gasoline, gasoil and jet fuel exports toward year-end, as the Ministry of Commerce is unlikely to issue new quotas for these key oil products for the rest of 2021, the Beijing-based sources said.

The fuel oil export quota holders -- Sinopec, PetroChina, CNOOC, Sinochem and Zhejiang Petroleum & Chemical -- are allowed to apply for the quotas transfers from fuel oil to the three key oil products for approval, the sources added.

After the approval, the Ministry of Commerce is likely to issue about 1 million mt of fuel oil export quotas for the rest of the year, the sources said. However, the new allocations will not be allowed to be transferred to the key oil products.

Beijing has issued 37 million mt of quota for exporting the three key oil products in 2021. Over January-September, China's exports of the products amounted to 33.7 million mt, according to data from the General Administration of Customs.

This showed that the oil companies' quota availability fell to as low as 3.3 million mt or an average of 1.1 million mt/month for the fourth quarter, slumping from 3.74 million mt/month in the first nine months.

With the quotas running out, the oil companies have decided to lower their gasoil and gasoline exports to minimum levels to ensure domestic supplies, while saving quotas for exporting jet fuel, Platts reported earlier. Jet fuel currently faces poor demand in China.

Beijing is set to cut China's key oil product exports in an effort to reduce carbon emissions along the value chain.

Fuel oil quotas

The ministry issued a total of 11 million mt of bunker fuel oil export quota as of Oct. 26 for 2021.

Even with the expected new quota for fuel oil, the total oil product export quota allocations would amount to 49 million mt, dropping 18.4% from the allocation of 60.03 million mt for gasoline, gasoil, jet fuel and fuel oil in 2020.

While the quantity of oil companies' fuel oil quota available for the rest of 2021 was unclear, market sources said Sinopec and PetroChina had used the majority of their quota, while Sinochem had used only a small portion.

China in January-September produced about 8.4 million mt of bunker fuel oil for exporting to the country's bonded ports for bunkering, according to local information provider Longzhong.

"Sinochem will benefit most among the oil companies from the quotas transfer, as its Quanzhou refinery is reluctant to produce bunker fuel oil for export, while is short of quotas to find outlets for its jet fuel in overseas," a Beijing-based source closed to the matter.

Sinochem was awarded 320,000 mt of fuel oil export quota and is expected to transfer all the unused quota to export key oil products, the source said.

The company is unlikely to apply for additional fuel oil quotas as the new allocations will not be allowed to be transferred to the key oil products.

Sinopec and PetroChina are expected to be the main applicants for the upcoming fuel oil quota allocations, sources said.

China's export quota allocations as of Oct. 26 ('000 mt)

Source: S&P Global Platts