China is set to register a sharp decline in oil product exports for calendar 2020 and oil companies may fail to fully utilize their export quotas as they find sales in the international market difficult during the coronavirus pandemic, a senior trading official at a state-owned oil giant said on the sidelines of the S&P Global Platts Asia Pacific Petroleum Virtual Conference, or APPEC, over Sept. 14-16.
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Register NowBeijing so far has allocated 56.03 million mt quotas for exporting gasoline, gasoil and jet fuel in 2020, slightly higher than the 56 million mt allocated in 2019.
Over January-September, China was likely to export about 36.2 million mt of oil products, S&P Global Platts estimated based on recent customs data and company export plans. This could mean that Chinese oil companies would have to offer about 20 million mt of oil products into the international market in the fourth quarter if they are to fully use up their quotas.
Oil companies typically strive to utilize all their quota allocation by year end in a bid to increase the chances of securing their export permits for the following year. In 2019, they used 99% of their quota by raising export volumes by 20% year on year to 55.37 million mt, Platts data showed.
However, the state-run refinery official said authorities may take a more lenient approach in assessing export permit grants for next year as domestic fuel producers struggle to sell their cargoes overseas amid lackluster international demand due to the pandemic.
"China's oil product exports will fall far behind the quota volume, but the government should understand as this year is very special due to the COVID-19 pandemic," the trading official said.
Q4 EXPORTS
The trading official estimated the country's key fuel exports in 2020 were unlikely to hit 50 million mt for the full year, which suggests that only around 14 million mt of gasoline, gasoil and jet fuel would be exported in Q4.
"Jet fuel is the most difficult product [to export] as demand from international flights has recovered to only 10% of pre-COVID levels," the trading official added.
S&P Global Platts Analytics is forecasting a year-on-year decline of around 5.4% in China's key oil product exports in Q4, weighed down primarily by a 36% decline in jet fuel exports.
Other analysts based in Beijing, Singapore and Hong Kong also project total exports in Q4 to come in at around 12 million-15 million mt, marking a year-on-year decrease, although a rebound from Q3 export volumes.
STOCK CLEARANCE
Still, Chinese refiners may need to selll more oil products overseas in Q4 than in the previous quarter as the country grapples with excess inventories after heavy rains, typhoons and floods reduced domestic consumer and industrial fuel demand in Q3.
"China has to lift its oil product exports [to cut high inventories], while state-owned refineries have to sustain or even slightly lift their run rates in an effort to meet their annual throughput target," said a senior official at Unipec, the trading arm of Sinopec, during a panel discussion at APPEC.
Sinopec, the world's biggest refiner by capacity, aims to lift its throughput by 15.9% to 5.18 million b/d in the second half of 2020 from H1, according to the company's interim results.
Moreover, domestic gasoil and gasoline wholesale prices have been falling recently, hampering refiner efforts to keep all the barrels at home amid rising stocks and tepid domestic demand.
Wholesale 10 ppm 92 RON gasoline and gasoil were offered at Yuan 5,550/mt and Yuan 4,800/mt on Sept. 15, down 6% and 3% respectively from Sep. 7 in Guangzhou, the capital of southern Guangdong province, according to a PetroChina trader.
Therefore, the differential between Mean of Platts Singapore assessments and tax-free Guangzhou wholesale prices narrowed to minus $1.73/b and minus $9.99/b for gasoline and gasoil, respectively, Platts data showed.
The differentials have been in the negative territory since the beginning of the year, falling as deep as minus $37.90/b in the week of April 20-24 for gasoline and minus $27.56/b for gasoil, data from Platts and local information provider SCI showed.