China's exports of rare gasoil cargoes to the Netherlands in August marked record-high shipments to Europe, as the arbitrage sales window was opened amid a rapid gas-to-oil switching trend in the West, industry and trading sources said over Sept. 20-21, citing latest data from China's General Administration of Customs.
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The August exports of 257,000 mt, or around 1.93 million barrels of gasoil to the Netherlands, surpassed the previous record of 223,000 mt in March 2020, customs data showed, placing the Dutch state as the top destination for China's gasoil exports.
August shipments from China also accounted for 31% of the total 829,000 mt of the middle distillate products exported over the same month, customs data showed.
Exports to the Netherlands were largely attributed to healthy arbitrage sales margins from East to West, according to sources.
As Russia continues to threaten major European economies by tightening its gas supplies, European traders are willing to pay some premiums to pick up additional gasoil from the Far East so that they can actively stock up on liquid fuels to support the region's power and industrial sectors, as well as for heating needs, according to middle distillate marketers at major Chinese, South Korean and Malaysian refiners.
China hardly exported any cargoes to Europe in the past 13 months, with just 83,000 mt, or 623,000 barrels, sent to west of the Suez in June 2021.
The front-month gasoil Exchange of Futures for swaps spread -- a key indicator of East-West arbitrage economics -- averaged minus $31.78/mt in August, widening from an average of minus $29.17/mt over July, S&P Global Commodity Insights' data showed, reflecting improving economics to sell Asian gasoil barrels on arbitrage routes to the West.
In Europe, refiners, power producers, and major industries are likely to account for a 308,000 b/d growth in liquids demand in the first quarter of 2023, according to S&P Global, equivalent to about half the global share of gas-to-oil switching. The growth figure surpasses the 166,000 b/d level, or 47%, in Q3 2022.
Gasoline exports to Pakistan
In August, China exported around 109,000 mt of gasoline to Pakistan, marginally lower by 2.4% on the month, bringing the year-to-date exports to 1.67 million mt over the first eight months of the year, up 79.9% from a year earlier.
This kept Pakistan as the second-biggest destination for Chinese gasoline cargoes, behind the regional trading hub Singapore, the GAC data showed.
Pakistan was the only destination that recorded steady growth among China's top five gasoline recipients in August, despite overall gasoline exports from China falling sharply by 30.2% on the year to just 7.59 million mt over January-August.
Looking ahead, however, Pakistan's faltering transportation fuel demand due to recent floods in the country may dampen gasoline sales to the South Asian nation in the near-term trading cycles, according to refinery sources and traders based in Beijing, Shandong, and Karachi.
Consumer demand in Pakistan was already under pressure because of surging retail fuel prices. Fuel consumption in September and October is expected to fall by at least one-third year on year, as multiple road links connecting southern Sindh and Balochistan provinces with other key districts have vanished amid floods, halting mobilization of trucks and containers, according to middle distillate distributors and market analysts.
A large section of the road and transport network to Pakistan's financial hub Karachi lies in Sindh, while Balochistan is the country's agricultural hub and a crucial consumer of middle distillates.
Pakistan's August domestic gasoline and fuel oil sales fell 13% year on year to 4.8 million barrels and 7% on the year to 2.48 million barrels respectively, with gasoil sales slumping 26% over the same period to 3.75 million barrels, Oil Companies Advisory Council data showed.
The average monthly consumption in the fourth quarter is also likely to weaken as floods hamper demand from the agricultural sector, said Tahir Abbas, head of research at Arif Habib in Karachi.
Top 5 destinations for China's gasoline, gasoil exports (Unit: '000 mt)
*Includes other outlets
Source: General Administration of Customs