China issues 12 mil mt clean oil product export quotas in third batch for 2023

The Chinese government has issued 12 million mt (95 million barrels) in export quotas for clean oil products and 3 million mt for fuel oil in its third batch of allocations for 2023, enabling oil companies to implement their export plans for September.

The allocation brought the quota volume for gasoline, gasoil and jet fuel exports to 39.99 million mt, up 7.4% from the overall quota allowance of 37.25 million mt for 2022.

Total fuel oil quotas thus far are at 14 million mt, 16.4% below the overall allocation of 16.75 million mt for 2022. China's fuel oil export quotas are used for supplying the domestic produced barrels for bonded bunkering at the country's ports.

It was unclear whether more quotas will be allocated towards the year end, sources said.

In 2022, China cut quota allocations sharply year on year until September when it awarded two rounds of allowance to encourage exports to boost the economy.

Similarly, "the domestic recovery is slower than expected, so it is possible for the government to issue more export quotas to spur GDP growth in the rest of 2023," a refinery source said.

"There should be some room to release more quotas in rest of the year as the accumulated LSFO quotas remain below the overall volume in 2022, while the LSFO quota allocations usually go with those for clean oil products," a Singapore-based analyst said.

"China's oil product output capacity is obviously higher than its domestic consumption. From a refinery's perspective, export volumes depend on the cracks between product and crude prices in the international market, while the government controls exports based on supply and demand balance in the domestic market," Sinopec's President Yu Baocai said Aug. 28.

Both Sinopec and PetroChina have been looking for more oil product export quotas, according to senior executives with the companies.

"Since May, export margins have demonstrated robust growth, propelling an uptick in China's product exports. The magnitude of the quota granted is in line with earlier anticipations. We expect September exports of gasoline, diesel, and jet fuel to exceed 900,000 b/d, and annual exports of gasoline, diesel, and jet fuel to exceed 850,000 b/d," said Fenglei Shi, a director with S&P Global Commodity Insights.

China exported 34.68 million mt (754,000 b/d) of gasoline, gasoil and jet fuel in 2022, data from General Administration of Customs showed.

Refiners across Asia are hoping for China to keep oil product export quotas tight for the second half of 2023 as an oversupply of Chinese products could put the brakes on rising Asian middle distillate cracks, with many traders fretting that China's fragile domestic oil demand outlook could potentially lead to more outflows.

Sep exports up

Taking the new clean oil product export quotas into consideration, a total of 16 million mt of quotas were available for August and the rest of the year, given that the country exported 23.99 million mt over January-July.

Market sources said oil companies are set to export about 3.5 million mt of clean oil products in September, comprising about 800,000 mt of gasoline, 1.1 million mt of gasoil and 1.6 million mt of jet fuel. The volume is likely to be 10% higher than in August.

The expectation of higher exports was likely supported by a record high throughput in August, despite September is a typical peak demand season for construction, agriculture, fishing and travelling, which requires keeping more barrels at home.

S&P Global data showed that combined crude throughput at Chinese refineries likely reached a record high in August as utilization rates at state-owned oil companies hit an 11-year high coupled with capacity expansions. Meanwhile, private refining complexes, which have been put into use one after another since 2018, have continued to operate at their full capacities.

Market analysts expected throughput to continue its rising trend for the remainder of the year as the maintenance season ends, which will also lead to surplus oil products available to export.

S&P Global said in its China monthly report Aug. 31 that: "China is on the cusp of its peak demand season, set for September-October. This contrasts with the anticipated tapering of global demand following its summer peaks. Such dynamics hint at possible challenges for Chinese refinery exports in the near future. Consequently, our base case anticipates that Chinese refineries could face downturns in their export margins after September."

China's clean oil product quota allocation ('000 mt)

China's fuel oil quota allocation ('000 mt)

Source: Market sources