Beijing has issued additional oil product export quotas of 4.5 million mt to four state-owned oil giants to ease pressure on inventories amid a relatively slow recovery in domestic demand, sources with knowledge of the matter told S&P Global Commodity Insights on June 7.
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Surging Asian middle distillate cracks have encouraged major refiners in South Korea and India to ramp up fuel exports, and now state-owned Chinese refiners will be able to capture the lucrative margins, a trader with a Chinese oil giant said.
Sinopec will receive 2.4 million mt of the quotas, CNPC will get 1.53 million mt, while 420,000 mt and 150,000 mt will go to CNOOC and Sinochem, respectively, the sources said.
Among the allocations, 3.5 million mt is issued under the general trade route while the rest is under processing trade route.
Under the general trade route, all the exported barrels must be shipped by ships and sold overseas. The exported barrels under the processing trade route are mainly for jet fuel used to refuel flights plying international routes at China's airports.
June exports to rise
The new allocation will help China to push seaborne oil product exports above 3 million mt in June, according to Platts Analytics.
Prior to the allocation, market talk was that China's exports in June would amount to just over 2 million mt, comprising 1.36 million mt of gasoline, 160,000 mt of gasoil and 650,000 mt of jet fuel.
Inventories at Chinese refineries are bulging, especially gasoline, due to strict movement controls over March-May due to COVID-19. They cut throughput to a two-year low of 12.66 million b/d in April, according to data from National Bureau of Statistics. The throughput volume in May is likely to be lower due to growing pressure on inventories, S&P Global Commodity Insights data showed.
If the government mandates state-run refineries to significantly lift throughput in June to propel industrial activity and GDP growth, oil product exports need to rise in tandem to offset any buildup in excess fuel inventories as the recovery in domestic demand could take time, with the zero-COVID policy still in effect, a Beijing-based analyst said.
Analysts expect China's oil demand in June to grow around 4% from May after Shanghai eased COVID-19 restrictions following a two-month lockdown.
More 2022 quotas set to be issued
Market sources said the new allocation should be supplementary quotas to the 13 million mt issued in the first round for 2022.
It means there will be at least one more round of quota allocation later this year.
However, analysts and market sources have stuck to their expectations that China's oil product exports in 2022 will fall as Beijing aims to minimize outflows to meet its net-zero target.
In 2021 the country exported 40.31 million mt of gasoline, gasoil and jet fuel, including barrels for international flights from China, according to data from General Administration of Customs.
Even with the current release, the total allocation for 2022 stands at 17.5 million mt as of June 7, still down 40.7% year on year.
In the first four months of the year China's exports of the three products dropped 51.7% year on year to 8.59 million mt , according to GAC data, leaving 8.91 million mt until the next round of quota allocation.
China's oil product allocation in June 2022 ('000 mt)
China's oil product export quota allocation as of June 22 (million mt)
* Includes 2,500 mt of natural gas quotas
^ Includes 2,000 mt of natural gas quotas
~Just for jet fuel export
Source: Market sources