China's fuel exports will rebound in August to nearly the highest level for the year so far after Beijing issued more quotas in June and July, though broader restrictions are expected to limit shipments to seven-year lows for 2022, analysts said. and analysts.
The recovery in fuel exports from China, the world's second largest producer of fuels refined, helped lower global prices that hit record highs in May and June as Western sanctions on Russia after the Ukraine war tightened global markets.
Shipments are expected to stabilize throughout the year, however, as Beijing prioritizes the local market to contain domestic fuel inflation.
Exports of diesel, gasoline and jet fuel for the year are up to 40% lower compared to 2021.
With China, once Asia's biggest gasoline exporter and a major supplier of diesel, falling, fuel importers will have to rely on South Korea, India and the Middle East, analysts said.
“With China remaining in a reduction mode so far, it is certainly an opportunity for export-oriented refiners in the rest of Asia and the Middle East to supply the shorts in Europe and the US,” said Mukesh Sadhav, head of downstream and oil trading. at Rystad Energy consultancy.
Asian refiners outside China are expected to increase their crude output by 10% to 15% this year, while China's output could be flat as a recovery in the second half offsets a rare decline in the first six months of the year, he said. Sadhav.
China's July refinery runs fell to the lowest level in more than two years, data showed on Monday, with year-to-date volumes down 6.3% from a year earlier.
China's diesel exports are expected to show the most dramatic increase in August, reaching one million tonnes for the first time since July 2021, as state refineries clear overflowing inventories that have built up since the COVID lockdowns. -19 stifled consumption, estimates from Refinitiv and Chinese commodity consultancy JLC showed.
“The higher (diesel) sales come at an inopportune time… with India poised to boost exports as it seeks to reverse its current account deficit, while South Korea has been plagued with surplus diesel,” said Zameer Yusof, an analyst. from Refinitiv.
Exports of combined gasoline, diesel and jet fuel are estimated at 2.4 million to 2.6 million tonnes in August, close to China's highest level so far this year, according to JLC and a trade source.
These higher exports contributed to lower Asian refining profits from June's record highs.
Still, annual exports of diesel, gasoline and jet fuel from China are expected to fall by 30% to 40% between 23 million and 27 million tonnes, according to consultancy Energy Aspects and JLC. It would be the smallest since 2015.
This suggests that monthly exports will remain close to their recent pace for the remainder of 2022, as China has already exported nearly 12 million tonnes of products in the first half.
“Capturing short-term export profits is not the government's priority, maintaining ample supply at home and containing domestic inflation,” said a Beijing trade executive.
Beijing has issued fuel export quotas of 22.5 million tonnes so far in 2022 and may not issue more amid a tax investigation into independent refiners and ahead of a seasonal spike in demand in September and October that will tighten domestic supply, said the JLC in a note.
JLC expects diesel exports in 2022 to decline 74% to 4.5 million tonnes and gasoline to drop nearly 40% to 9 million tonnes.
Aviation fuel exports alone will rise 11% to 9.5 million tonnes, the JLC said, as COVID-19 lockdowns and border controls cut off domestic and international Chinese flights.
Data from VariFlight, a China-based flight data service, showed that China's domestic passenger and cargo air traffic in July was 20% lower compared to July 2019, while traffic to and from international destinations was 20% lower. just 3% in July 2019.
Sources: investing.com
