SINGAPORE: China’s state refiners will reduce diesel exports in July, as they target higher profit margins at home after two rounds of pump price hikes last month and deterred by the sluggish Asian demand. The world’s number two energy user will keep gasoline exports stable at 330,000 tons this month, in the face of rising car sales. Traders estimated July diesel exports to slow to 120,000 tons from 200,000 tons in June, as the country is also seeing signs of recovery in the economy, which is expected to grow about 8 percent this year, the State Information Center said.
The shipments exclude diesel supplies in transit, or bonded diesel volumes, that are not for domestic sales.
To grab better domestic margins, China’s top dozen refi neries will boost July crude run rates by 9-10 percent to a record of 2.67 million barrels per day (bpd).
Chinese state refiners are holding back more supplies in July, especially after the retail fuel-price hikes spurred an 11 percent rise in wholesale diesel prices last month.
The two rounds of retail diesel price rise amounted to a whopping 17 percent in June, above the 15 percent increase in gasoline rates at the pumps, said US-based consultant Paul Ting.
“This massive increase certainly increased the attraction of selling diesel in the domestic market. In addition, we note that diesel inventory has come down faster than gasoline inventory,” he added.
Hefty diesel exports over the past two months also helped to draw down stockpiles. Official customs data showed China’s diesel exports, including bonded supplies, were 128,000 bpd for April to May.
“The economics are more favorable if they keep supplies back home. Outside China, demand in Asia is very poor,” said one trader in Singapore.
Lower diesel shipments from China for July offered some support to the Singapore gas oil crack spread to $6.50 a barrel, up from $6 lows earlier in the week.
But the Asian gas oil market is still saddled by weak demand from key buyers Indonesia, which is reducing imports to 3.0 million barrels in August from last year’s monthly average of 5.0-6.0 million barrels.
And Vietnam, which is expected to get some 25,000 tons a month of gas oil from its new Dung Quat refinery this month, has reduced its third-quarter imports by 40 percent year-on-year.
Traders also said that despite nascent signs of economic recovery, it is still too early to conclude that China’s oil demand is on track for a strong rebound, especially since the price increases could be a dampener.
For example, gasoline inventories held last month by state refiners CNPC, parent of PetroChina, and Sinopec jumped by 7.6 percent in June versus 5.4 million tons at the end of May.
Diesel stocks rose by a smaller 1.4 percent in the same period from about 6.3 million tons at the end of the previous month.
Chinese fuel oil demand used for power generation in factories is dwindling due to a switch to liquefied natural gas (LNG).
With China National Offshore Oil Corp (CNOOC) buying more spot LNG supplies to cover peak demand for power generation in summer, fuel oil imports fell and the trend is expected to continue over the next couple of months.
China is seen to have imported 1.95-2.0 million tons for June, down 15-17 percent from May.
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