China releases third export quota; 8 MMt for clean oil products, 1 MMt for LSFO

China has released 8 million metric tons of export quotas for clean oil products, and 1 MMt for low sulfur fuel oil in the third batch, sources close to the matter told S&P Global Commodity Insights Sept. 20.

The new allocation pushed the combined export quotas to 54 MMt for 2024, almost unchanged from the 53.99 MMt for 2023, as the government prioritized supplies to meet domestic demand while avoiding higher emissions from producing oil products for exports, sources said.

The clean oil product quota volumes amounted to 41 MMt for 2024 with the new allocation, slightly above the allowances for 2023 and in line with the expectations reported by Commodity Insights.

In 2023, the volume stood at 40.79 MMt, comprising 39.99 MMt from three batches and an additional 0.8 million mt converted from LSFO quota in late November.

"We think the impact on Singapore product cracks is NEUTRAL as the market has factored in this expectation over past one month," said Zhuwei Wang, director, East of Suez oil market research at Commodity Insights.

He expects gasoline exports to remain steady for rest of the year due to poor export margins, while gasoil exports would rise in Q4 but remain contingent on export margins and western restocking demand for winter heating.

"We have arranged the September exports, so will not adjust the volume despite the new allocation, plus the margins are weak," said a source with a state-owned refinery in South China.

China's clean product exports are forecast at 849,000 b/d in 2024 and 856,000 b/d in 2025, in the base case scenario, analysts at Commodity Insights said in a monthly report Aug. 30.

In January-August, China's gasoline, gasoil and jet fuel exports averaged at 851,000 b/d, down 7.6% from the corresponding period last year, the customs data showed.

The clean oil product allowance comprised 6.47 MMt to seven quota holders for exports under general trade route, and 1.53 MMt to PetroChina and Sinopec for outflows under processing trade route.

The quotas under processing trade route are usually used for jet fuel bonded refilling to outbound flights at China's international airports, while those under general trade route for cargo exports of any clean oil products to overseas.

Jet fuel exports, comprising bonded and seaborne, have been accounted for about 50% of China's clean oil product exports in the first eight months.

China's domestic jet fuel prices move in line with Mean of Platts Singapore jet/kerosene.

LSFO quotas

Overall, the LSFO quota volumes are currently at 13 MMt for 2024, down from 14 MMt in the three batches issued last year.

Quota holders in November 2023 swapped 830,000 t of LSFO with clean oil product allowances, bringing the total LSFO volume to 13.17 MMt and clean oil product volume to 40.82 MMt by year-end.

"The total LSFO quota is lower than expected and is considered BULLISH for the Singapore LSFO crack. This is because Chinese bunker suppliers may need to import LSFO from other Asian countries if they exhaust their quota," Wang said in a First Take note.

LSFO quotas are for exporting domestically produced barrels to bonded zones in Chinese ports, bunkering the outbound vessels. In addition to the domestically produced barrels, suppliers also import from overseas for bonded bunkering.

"We applied for 50,000 t of LSFO quotas, but we get nothing in this batch," said a source with a state-owned quota holder.

The export allowances for LSFO by Sinopec were at 470,000 t, PetroChina 440,000 t and CNOOC 90,000 t.

China's 3rd batch clean oil product quotas allocation ('000 metric tons)