China's fuel refining and export output hits highest level in many months
Although most of China's exports, especially diesel exports, are expected to be in Asia, the increase in oil exports could cool part of the energy crisis that Europe and the US are most affected by, as it could promote more product lines from other Asian refineries to Europe.
Thanks to increased quotas and export demand, the number of Chinese fuel exports in September this year increased by 36% compared to the same period last year, reaching the highest level since June 2021.
China's diesel exports in September more than doubled compared to the same period last year, at 1.73 million tons, and also significantly higher than August exports, according to data from the General Administration of Customs of China.
According to Reuters' estimate, diesel exports in September were the highest monthly figure since July 2021. For comparison, China exported 830,000 tons of diesel in August 2022 and 780,000 tons in September 2021.
However, from January to September 2022, China's fuel exports still decreased by 27.6%. This decline is due to China's policy from 2021 to limit excess exports and reduce processing quotas at refineries due to reduced demand due to the COVID-19 pandemic.
Low domestic demand and weak profit rates have prompted independent refineries to reduce fuel processing ratio.
However, thanks to the resumption of major state-owned refineries after planned maintenance, the output of refineries in China has increased since November 2021.
According to data from the National Statistics Office, cited by Reuters on October 24, China's refining output increased by 1.9% in September compared to the same period in 2021 and was at about 13.82 million barrels/day. This figure is much higher than the output of 12.64 million barrels/day in August 2022.
Export increase trend
Since September, there have been signs that China may start increasing fuel exports in the coming months. At the end of September, China announced its largest oil export quota, allocating 15 million tons to major refineries, and this quota could be moved to early next year.
The move is seen as China's efforts to restore economic activity - which has been affected by COVID-19 blockades and the real estate crisis since spring.
Meanwhile, Asian fuel sellers are reportedly increasing diesel exports to Europe, benefiting from the willingness of high-end customers in Europe to pay as the region is in serious fuel shortages.
Fuel market tightens
Europe has only 4 months left to ban imports of Russian oil products by sea and is still importing diesel from Russia before the embargo. The ban could be another shock to an already tight supply of fuel in Europe.
Ole Hansen - Head of Commodity Strategy at Saxo Bank - said that the profit margin of diesel refineries in Europe and New York (USA) continued to increase this month due to concerns about the fuel market being tighter in winter. US diesel reserves are at a seasonally low as winter enters, while the situation in Europe seems similar.
It is uncertain how China's increased oil exports could directly affect diesel supplies in Europe and the US, but other refineries in Asia could boost exports to Europe in the coming months as the EU looks to replace diesel imports from Russia.
