Chinese oil companies are focusing on the strengthening Asian market amid weak demand at home, aiming to boost jet fuel exports above 1 million mt in January, while cutting gasoil outflows due to lower 2022 export quotas, trade and refinery sources told S&P Global Platts Jan. 10-12.
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The country's oil companies are likely to ship at least 1.14 million mt of jet fuel in January, up from an estimated 720,000 mt in December, according to sources with the knowledge of the matter. Beijing cut the first batch of 2022 gasoline, gasoil, and jet fuel export quotas by 56% year on year to 13 million mt.
"Export margin for jet fuel is quite good in the overseas market, while demand at home is capped by COVID controls, so that we save the precious quota for the fuel," said a source with a PetroChina refinery.
Analysts expected China's jet fuel demand to decline 15%-20% year on year in January, due to coronavirus-led restrictions ahead of the Lunar New Year and the Winter Olympics in Beijing.
Tight Asian jet fuel/kerosene supply, due to curtailed regional production, has lifted prices fueling bullish sentiment.
The FOB Singapore jet fuel/kerosene cash differential jumped 17 cents/b on the day to a more than three-week high of plus 70 cents/b to Mean of Platts Singapore jet fuel/kerosene assessment at the Asian close Jan. 12.
The assessed cash differential was last higher at MOPS plus 83 cents/b Dec. 20, 2021, Platts data showed.
The strength was reflected in the Singapore jet fuel/kerosene complex, with the front month February-March jet fuel/kerosene swap spread climbing to a two-month high of plus 73 cents/b at the Asian close Jan. 12.
"As flights outside of China are expected to recover more quickly than in China, where the zero COVID strategy will remain in place," S&P Global Platts Analytics said in a Jan. 7 report, suggesting that China's share of jet fuel exports could rise among the three oil products.
China's state-owned Sinopec and PetroChina are each expected to export around 400,000 mt of jet fuel in January, while CNOOC and Sinochem are likely to ship 150,000 mt and 110,000 mt, respectively, according to sources.
Three refineries under PetroChina, including two at northeastern Liaoning and one at southern Guangxi, plan to export at least 160,000 mt of jet fuel in January. Sinopec's Zhenhai Petrochemical & Refining is looking to export around two cargoes of jet fuel, totaling around 80,000 mt.
Chinese gasoil exports to drop 38% in Jan
Only Sinopec among China's export quota holders is likely to export gasoil in January, despite the strong regional gasoil price, sources said. Sinopec is expected to export around 130,000 mt of gasoil during the month, including 40,000 mt from its Tianjin refinery and 30,000 mt from its facility in Qingdao.
China's gasoil export volume, as a result, is expected to slump 38% month on month in January, from initial estimated gasoil exports of 210,000 mt in December.
Norinco's Huajin refinery has deferred the export a 30,000 mt gasoil cargo to February, from January, according to a company source.
"We had expected the quotas to be allocated in late January, so not planning any for January," the source said.
The Singapore M1/M2 10 ppm sulfur gasoil derivative timespread soared to a more than two-year high of plus $1.26/b at the Asian close Jan. 12, up 20 cents/b on the day. The spread was last higher at plus $1.45/b Sep. 30, 2019, according to Platts' data.
Tightening gasoil exports from China come amid healthy demand cues from most Asian countries, which are choosing COVID-19 vaccines over lockdowns to contain infections.
"Asia [is] definitely lacking supply given the China quota news, so the main resupply point into Singapore looks like west coast India barrels," a regional trader said.
With major Northeast Asian suppliers already running at high rates, the regional supply is expected to be tight amid lower China gasoil volumes, another source said.
Jan gasoline outflows to fall 17%
China's January gasoline exports are also expected to fall 17% to 942,000 mt, according to sources, with PetroChina leading with 400,000 mt outflows during the month.
Zhejiang Petroleum & Chemical will likely export around 200,000 mt of gasoline in about five cargoes. "Gasoline exports are quite profitable," said a source with ZPC.
Sinochem, which has shut its Quanzhou refinery for maintenance, will export around 152,000 mt of gasoline in January. About 100,000 mt will be exported from Sinochem's refineries under ChemChina in Shandong, according to market sources, but this could not be confirmed.
The FOB Singapore 92 RON gasoline crack against the front-month ICE Brent crude futures was pegged at $10.10- $10.20/b at 0200 GMT Jan. 12, steady compared with $10.18/b at the Asian close Jan. 11.
Traders expect tight supply in the Asian gasoline complex to persist through 2022, following China's announcement of lower first batch of oil products exports.
Asian gasoline demand, meanwhile, is expected to grow by 410,000 b/d year on year in 2022, according to Platts Analytics.