Beijing likely to allocate new batch of export quotas for clean products, LSFO

Beijing can tentatively release a new batch of export quotas for clean oil products and fuel oil as early as March, but the potential increase in quotas is less likely to affect markets, refiners, traders and analysts told Platts March 12.

Poor export margins amid heightened tax costs and the expectation of stable annual quota volumes compared to 2024 may dampen the reaction. Some market observers noted that the intention of the allocation could be the government's attempt to boost the economy by lifting products exports.

The volume of the potential allocation was uncertain, with some sources pointing to a combined 6 million mt or 10 million mt of export quotas for clean oil products and low sulfur bunker fuel oil, while some said merely 6 million mt would go to gasoline, gasoil as well as jet fuel.

"Selling in the domestic market is more profitable, not wise to lift exports just because of the higher quota availability," a refiner with state-owned Sinopec said.

Starting Dec. 1, 2024, Beijing reduced the value added tax rebate on clean oil products exports, adding $3-$4/b in costs, which squeezed export margins.

Gasoline export losses widened to $5.85/b as of March 11 from an average of $2.56/b in February and gasoil export loss deepened to $3.64/b so far in March from 35 cents/b last month, according to analysts with S&P Global Commodity Insights.

In comparison, the average export margins for gasoline and gasoil stood at $6.06/b and $7.69/b, respectively, in the same period of March 2024.

Bearish 2025 export margins

"For 2025, we maintain a bearish outlook on China's gasoline and gasoil export margins. China's clean product exports are forecast at 745,000 b/d in 2025 despite the annual quota allocation is more likely to be stable from 2024," said Minmin Hu, an associate director with Commodity Insights.

Several refiners with Sinopec and PetroChina said they did not see a signal about an increase in annual quota allocations.

"The government's principal objective remains controlling exports to avoid higher dependency on imported crudes and to lower emissions from the refining industry," said an operation planner with a Sinopec refinery.

"We expect the total quota allocation in 2025 will be the same as in 2024, while the earlier allocation will offer more flexibility for us to plan our operation."

The country exported 797,000 b/d of gasoline, gasoil and jet fuel in 2024, down 12.4% year on year, despite the stable annual quota volumes, Chinese customs data showed.

Jet fuel has been the most popular barrel for exports as it is priced against a monthly average of the Mean of Platts Singapore jet fuel/kerosene assessments, changing in line with international prices.

Early allocation sparks talks

The second batch of quotas is usually allocated in May but the coming batch for this year was expected to release in March-April, when the current quota availability was ample.

"The new batch, even if it comes as late as in April, remains too early and atypical. In addition, China just set a 5% GDP growth in 2025 amid the intensifying China-US trade dispute. We can't eliminate a possibility of the government's attempt to boost oil products exports by heightening the annual limit, like what happened in 2022," a Singapore-based trading source said.

"But it has been different from 2022 when the whole of China was locked amid tight COVID-19 controls, slumping domestic demand," a Beijing-based analyst noted.

"Boosting domestic consumption is on the top agenda for 2025, while the higher tax cost for product exports reflects the government discouraging exports."

As a result of the higher cost, Chinese oil companies' export targets for gasoline, gasoil and jet fuel fell 15.7% year on year to 9.77 million mt in the first quarter, Platts data showed.

If they fully fulfill the targets, the quota availability would stand at 9.23 million mt, which was estimated to be more than sufficient to cover exports for more than two months.

China in late December released 19 million mt of quotas for gasoline, gasoil and jet fuel as the first batch of allocation for 2025, stable from the same batch for 2024. Similarly, the LSFO bunker export quotas released at the same time were steady at 8 million mt.

The quotas for LSFO attracted less attention than the clean oil products, as the former's allowances are only allowed for bonded bunkering at Chinese ports rather than directly being exported via shipments.