China's sluggish gasoil exports buoy Asian market, but headwinds remain

China's lower-than-expected gasoil exports since the Golden Week holiday over Oct.1-7 are providing near-term support to the Asian gasoil market, though the support may prove short-lived as heavier outflows in November are expected to increase availability by year end, market sources said Oct. 17-18.

Industry participants have been closely watching gasoil export volumes from China since refiners returned after the week-long holiday to news of the release of the latest batch of oil product export quotas, which include 13.25 million mt for gasoil, gasoline and jet fuel, as well as 1.75 million mt for fuel oil.

"They have been issued 15 million mt in oil product export quota ... don't think logistically they can export the full volume in the rest of the year," an industry source said.

However, China's gasoil exports have been unexpectedly slow since the quota release, with several shipping fixtures done for October-loading cargoes reportedly having failed, which has contributed to a slight recovery in the Asian gasoil complex.

"Close to half a dozen ships were taken for loading gasoil during the Oct. 21-31 period at Chinese ports recently, but most of them have now been released, with no replacements in the offing," a broker in Tokyo said.

The Platts FOB Singapore November-December time spread for 10 ppm sulfur gasoil derivatives was assessed at $5.65/b at the 0830 GMT Asian close Oct. 17, widening 0.89% day on day and surging 68.66% since Oct. 11, when the latest uptrend began, S&P Global Commodity Insights data showed.

The slow pace of exports comes as China's refiners hold back in anticipation of better earnings, market participants said. Less than 100,000 mt has been covered with spot tonnage for shipment in the last decade of October so far, although this volume does not include exports that companies do in their own ships that are not picked up from the spot market.

Unlike the past when China's refiners would have to exhaust their quotas by year end, the new option to roll over quotas to the next year allows them to "test the market to avoid higher freight with a lower cargo price," the broker said. "They have become smarter and there is no rush to export; volumes are being offered only step by step."

Demand from Europe

Nevertheless, the supply outlook is changing and export volumes for Chinese gasoil are expected to pick up in November, market sources said.

"China's exports still not fully felt yet... expecting November will have more China exports showing up," a Singapore-based middle distillate trader said. "[Gasoil] cargo market expected to weaken if more China exports show up, but this will at the same time strengthen freight."

However, while industry sources anticipate higher export volumes for November-loading cargoes from China, a lack of clarity about the export plans of Chinese quota-holders has prompted some buyers in Asia to secure barrels from other sources to alleviate uncertainty and supply risk.

"Buyers slowed down their pace expecting cheap Chinese barrels, but the Sinopec/PetroChina [export] schedule was not out till last Friday," a regional middle distillate trader said Oct. 17.

"Heard more and more [gasoil cargoes] flow into the market," said a source with a Northeast Asian refinery, adding that robust exports from South Korea for November-loading cargoes have also been adding to supply balances in the region.

Echoing a similar sentiment, the Singapore-based trader said: "[South] Korea and Taiwan back from turnaround, so potentially more exports in November."

Nevertheless, strong demand from Europe was providing some support to the gasoil market in Asia amid ongoing refinery strikes in France since late September and growing appetite for non-Russian gasoil in the run-up to winter, which was also propping up backwardation in the gasoil market to some extent, market sources said.