China issues 18 mil mt export quotas for clean oil products, fuel oil in second batch

China issued 18 million mt or 136.7 million barrels of export quotas in the second batch, comprising 14 million mt for gasoline, gasoil, jet fuel and 4 million mt for fuel oil, several sources with close knowledge of the matter told S&P Global Commodity Insights May 7.

The volume was in line with market expectations, which allow the quota holders to have more flexibility to plan their exports in line with market changes, sources said. The official document was not immediately available.

With the new allocation, the total quotas for clean products amounted to 28.4 million mt in the first two rounds, up 7.2% from the corresponding rounds in 2023.

The country exported 10.16 million mt (887,000 b/d) of gasoline, gasoil and jet fuel in the first quarter, falling 21.2% year on year, data from General Administration of Customs showed.

These suggested about 22.84 million of clean product export quotas remaining until the next allocation round. In 2023, clean oil product export quotas amounted to 40.82 million mt.

Fuel oil export quotas totaled 12 million mt, up 9.1% on the year. The quota totaled at 13.17 million mt in 2023.

2024 exports outlook

Going ahead, traders and analysts generally expect steady Chinese outflows in 2024 compared to a year prior, amid weak refining margins and talks of oil export curbs.

"Although stable export volumes remains the consensus view, we believe there is a slight downward pressure on the clean product exports in 2024. This is primarily because of a higher likelihood of profit declines year on year in the second half of 2024. Additionally, refineries will be more sensitive to arbitrage economics when planning throughput and exports amid weak chemical profits," said Shi Fenglei, S&P Global's downstream research and analysis director.

She added the main uncertainty lies in whether the ramp-up speed of overseas refineries falls short of expectations, which could leave more room for profits and exports.

S&P Global Commodity Insights projected the average export margin gasoline would slump 43.8% year on year to average $2.34/b in 2024, while gasoil export margin would fall 8.9% to $4.87/b in 2024 from about $5.35/b in 2023.

Clean oil product exports from China would edge down to about 893,000 b/d in 2024, after a 21.8% year-on-year jump to 910,000 b/d in 2023, S&P Global estimated.

Some analysts, however, expected a slight year-on-year growth in 2024. "The outflows in the second half 2024 would see a year-on-year increase as the country's effort to boost economy and exports to meet the 5% GDP growth target," a Beijing-based analyst said.

May outflows likely to fall

In the short term, refining sources said they are cutting gasoil exports in May from the previous months due to the weakening margin.

A state-run refinery in northeastern China will export one MR-sized cargo of gasoil in May, down from two cargoes in April, as the margin fell to around Yuan 200/mt ($3.72/b) in early May from Yuan 500-600/mt in April, according a company source.

S&P Global estimated gasoil export margin dropping to around $2.6/b as of May 6 from the average $6.94/b in April. But the figure remained better than a loss of $7.85/b seen in May 2023.

China's clean oil product exports reached a 14-month high of 4.55 million mt (1.25 million b/d) in March, GAC data showed.

"We expect exports in April to decrease from the level seen in March due to maintenance at state-run and mega independent refineries but higher than the volumes in January and February," said Minmin Hu, associate director, downstream research and analysis, S&P Global Commodity Insights.

Chinese oil companies are required to prioritize supplies to meet domestic demand rather than capture export margins.

China's clean oil product export quotas allocation ('000 mt)

China's fuel oil export quotas allocation ('000 mt)

Source: Market sources