China's lagging industrial activity leads to higher gasoline, gasoil exports in May

China's oil product exports rose sharply in May with resumption in gasoil sales to Europe and several rare gasoline shipments made within the Asian market amid growing need for some destocking activity due to tepid industrial fuel demand at home, market participants said June 21-22.

Chinese oil companies exported 598,000 mt, or around 4.49 million barrels, of gasoil in May, almost a fivefold jump from 122,000 mt in the same period a year earlier, while gasoline shipments rose 62% year on year and 65.4% on the month to 1.363 million mt (11.5 million barrels) last month, data from the General Administration of Customs showed on June 21.

It is generally believed that the stocks of oil products in China have been building up mainly due to a tepid recovery in domestic demand, as well as weak export margins, industry and trading sources said.

The demand for gasoil has been relatively weak, leading to a slight build up in the middle distillate product stock level, a Beijing-based analyst said.

Although the improvement seen in the country's service sector paints positive outlook for domestic oil demand, manufacturing and construction sectors could struggle to contribute much to the overall fuel demand growth, market sources and analysts said.

China's official manufacturing PMI came in at 48.8 in May, down from 49.2 for April, according to the National Bureau of Statistics. This is also the second consecutive month where the PMI fell below the critical 50-mark, which separates expansion from contraction. China's real estate investment also declined 7.2% in the first five months, NBS data showed.

Reflecting the tepid industrial oil demand fundamentals, more than 1,000 medium sour crude partials traded during the Platts Market on Close assessment process to date in June and China's state-run trading firm Unipec has been actively selling Middle Eastern crude cargoes upon multiple convergences of 20 partial trades in the MOC process.

A convergence occurs when 20 partials are traded between two counterparties, resulting in a full 500,000-barrel physical cargo being declared from the seller to the buyer.

The increased selling by Unipec could be due to renewed concerns over a slowdown in Chinese domestic oil products demand, especially for gasoline and gasoil, encouraging some refineries to prioritize running down product stocks, S&P Global Commodity Insights reported previously.

Gasoil sales to Europe resume

Gasoil exports to Europe resumed in May as China sent around 120,000 mt to Belgium after registering zero shipment in April, the customs data showed.

China had started to export gasoil to Belgium from March 2022 and regular shipments have been made to the European nation since then, especially following the EU's ban on Russian oil.

In the first five months of 2023, China exported 560,000 mt of gasoil to Belgium, up 600.5% year on year.

Gasoil exports to the Netherlands also resumed with 79,800 mt sent in May after two months of vacuum.

China also made a rare gasoil export to New Zealand, sending 40,000 mt to the Oceania buyer in May

Still, Asia remained the top region for the bulk of China's gasoil exports. Bangladesh, Philippines, and Singapore were the top three buyers of China's gasoil over January-May, together taking 49% of total gasoil shipments, compared with 48% a year earlier.

Rare gasoline exports to South Korea, Sri Lanka

China also registered a rare gasoline shipment to South Korea last month, sending 20,000 mt to the neighboring country.

"South Korea is Asia's top [oil product] supplier not a buyer... the rare Chinese gasoline shipment explains the need to offload some stocks and South Korea's prompt demand for extra top-up supplies as consumer demand improved following Seoul's fuel tax cut extension and falling oil prices," said a middle distillate trading manager at a major South Korean refiner based in Seoul.

China also exported rare gasoline cargoes to Sri Lanka, sending 35,500 mt in May which marked the first shipment to the South Asian nation since 29,700 mt in December 2020.

Singapore remained China's top gasoline export outlet in May at 973,000 mt, which was up 61.2% from April and more than double from 462,000 mt a year earlier.

China's top 5 gasoline, gasoil export outlets (Unit: '000 mt)

*Includes other destinations

Source: General Administration of Customs