China has announced an additional fuel export quota of 9 million metric tonnes for the remainder of 2024, consisting of 8 million tonnes of clean refined fuel and 1 million tonnes of marine fuel, according to reports from two Chinese commodities consultancies and multiple trade sources on Friday. The latest batch is part of China’s annual export quota system and is expected to have significant implications for regional supply and refinery margins.
This new and likely final batch of export quotas for 2024 brings the country’s total fuel export allocation to 54 million tonnes for the year. In comparison, 45 million tonnes were allocated in the first two allotments earlier this year. The total export quota for 2024 is similar to last year’s total of 53.99 million tonnes, indicating a steady trend in China’s fuel export policy.
However, the size of the third and final batch of quotas is smaller compared to the same period last year when 15 million tonnes were allocated, including 12 million tonnes of light transportation fuels like gasoline and diesel, and 3 million tonnes of marine bunker fuel. The reduction in the third batch has caught the attention of industry watchers, as it could influence supply dynamics in the region.
Impact on refiners and market margins
China’s fuel export quotas are closely monitored by industry players because they have a direct impact on fuel supply, refinery operations, and profit margins across the Asia-Pacific region. The latest batch of quotas is expected to stimulate crude processing at Chinese refineries, especially as many refiners still have a considerable portion of unused export quotas left for the fourth quarter of the year.
Bi Xin Xin, a managing consultant at energy consultancy Wood Mackenzie, noted that Chinese refiners are in a favorable position with a significant amount of export quotas still available for Q4, which could lead to increased crude runs. However, she also highlighted potential downside risks, such as the pace of domestic demand recovery and profitability concerns in both the domestic and export markets, which have been highly volatile in recent months.
Breakdown of quotas by companies
For refined fuels like gasoline, diesel, and jet fuel, China’s state-owned oil giants Sinopec, CNPC (China National Petroleum Corporation), and CNOOC (China National Offshore Oil Corporation) received the majority of the allocation, securing 6.38 million tonnes, or roughly 80% of the total volumes in the latest batch.
Sinochem, another state-owned entity, was granted 790,000 tonnes, while private refiner Rongsheng Petrochemical Corp was allocated 730,000 tonnes. China North Industries Group Corp (Norinco), which is known for its defense and petroleum businesses, received a smaller quota of 100,000 tonnes.
China’s Ministry of Commerce has not yet commented on the latest export quota allocations.
Challenges in the export market
Despite the new export quotas, China’s fuel exports have faced challenges in 2024. Data from the first eight months of the year show a sharp decline in gasoline and diesel exports, which fell by 26% and 31%, respectively, compared to the same period last year. This drop is attributed to lower refinery output and narrowing export margins, which have impacted the profitability of shipping fuel abroad.
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Aviation fuel, on the other hand, has been a bright spot for Chinese refiners. Jet fuel exports rose by 33% in the same period, driven by a recovery in global travel demand and stronger jet fuel margins in Asia.
Marine fuel quota falls short of expectations
The marine fuel export quota in the third batch, set at 1 million tonnes, was significantly lower than market expectations, which ranged from 2 million to 3 million tonnes. This smaller allocation could reduce the supply of domestic marine fuel for China’s bunkering industry, potentially increasing the need for imports from other regional hubs like Singapore.
A trader familiar with the marine fuel market commented that the lower quota may lead to more barrels being sourced from Singapore to meet domestic demand in China. However, the trader also noted that the reduced volume is unlikely to cause a major spike in market prices, as China’s total bunker fuel sales have been lower in 2024 compared to last year.
China’s latest fuel export quota announcement reflects a balanced approach to managing both domestic and international fuel markets. While the new allocation is expected to boost refinery activity in the fourth quarter, challenges remain, particularly in light of fluctuating demand and market conditions. With domestic consumption on a path to recovery, China’s fuel export policies will continue to play a pivotal role in shaping the regional energy landscape.
