China says no extra quotas for clean oil product exports, crude imports: quota holders

The Chinese government will not issue new quotas for clean oil product exports and additional allowances for crude oil imports this year, three Beijing-based trading officials with knowledge of the matter said late Sept. 27.

According to the sources, a governor with the country's top planner, the National Development Reform Commission, had said this during a meeting with state-run companies Sept. 27, which will cap China's oil product exports and crude inflows at least in the coming months.

"The move indicates the government's intention to cap the extra crude imports which would generate extra oil products to export, while keeping domestic supply and demand balance as China's economy recovers," a Singapore-based analyst said.

China in September and October 2022 released extra crude import quotas and oil product export quotas to boost refining activities which had been dampened due to tight COVID-19 related controls.

Meanwhile, "as we do not hear the time frame of 'no quota', it is still possible for the government to issue export quotas as early as in end-October. But even if there will be new quotas, a surge in outflows would only last for about a month by end-2023," a Beijing-based analyst said.

There had been talks in Singapore that China may allocate a fourth batch of export quotas of about 5 million mt for clean oil products, which would help Chinese oil companies to take advantage of hefty margins, spurred by Russia's temporary export ban, to sell gasoil overseas.

But refining sources with the state-owned quota holders said they were being cautious in exports amid tight availability of allowances despite gasoil export margin hover at $18-$20/b, suggesting less hope of extra quotas.

With no additional quotas allocated, China's average clean oil product exports will be in a downtrend as only about 11.81 million mt (770,000 b/d) of clean oil product export quotas will be available for September through the rest of the year, given that the government awarded 37.99 million mt (870,000b/d) of quotas for 2023.

In the first eight months of 2023, China exported 28.18 million mt, or around 920,000 b/d, of clean oil products consisting of gasoline, jet fuel and gasoil, with volumes surging 72% from a year ago, General Administration of Customs data showed.

Market sources also said the export quota transfer from fuel oil to clean oil products remained pending for government approval, which would lift the oil product export allowance. But the volume for quota swap is limited as only around 3 million mt of fuel oil quota available for Q4, they said. China allocated 14 million mt of fuel oil export quota for 2023, down 16% from 16.75 million mt for 2022, S&P Global data showed.

Crude import quotas

On Sept. 28, serval independent refiners told S&P Global that they should have been awarded the remaining crude import quotas to reach their annual allowance ceiling, but the accurate volume of the allocation is unclear as the official document is not available to them yet.

S&P Global estimated the remaining crude import quotas amount to 10.45 million mt for 15 refineries, while the greenfield Yulong Petrochemical will receive quotas to bring in crude barrels for trial runs by year-end.

The government previously allocated 171.06 million mt of crude import quotas in 2023, accounting

or 94% of the refineries' annual quota ceiling of 181.50 million mt, S&P Global data showed.

But the sources said the NDRC indicated that no more extra crude import quotas will be issued this year beyond the annual allocation ceiling for refining quota holders.

China's qualified refineries, including privately-held complexes and small-sized independent plants, are hungry for the remainder crude import quotas for 2023 as well as extra allowances to facilitate their respective crude procurement plans, S&P Global Commodity Insights reported Sept. 12.

Independent refineries which have used up their crude import quotas for 2023 would have to find alternative feedstocks for the remainder of the year. Some of these refineries, which had purchased extra barrels in the hope of receiving additional quotas, have had to place them in bonded storage.

In October 2022, the government issued the first batch of crude import quotas for 2023 at 19.93 million mt in an effort to aid international trade flow towards the end of the year.

Some independent refineries had expected to receive an additional round of crude import quotas amounting to about 27.36 million mt around end-September or early October, similar to what had happened in 2022.

China imported 11.42 million b/d of crude over January-August, up 15% year on year, the GAC data showed.