Beijing's surprising release on Tuesday of a fourth batch of oil product export quotas for the year, totaling 2 million mt, is expected to weaken the Asian gasoline and gasoil markets.
"I do worry China's heavy [gasoline and gasoil] outflow in December will dampen international market, which has already been quite weak," a source with China's export-oriented refinery West Pacific Petrochemical said.
"We will try all means to use up the [export] quotas by year-end," a Beijing-based trader said Tuesday, adding that the award came as a surprise. "The Ministry of Commerce gave us a verbal notice this morning telling us that we have new quota allocation," the trader said.
China had been widely expected to award only 46 million mt of export quotas for gasoline, gasoil and jet fuel in 2018 to cap refining activity and control pollution. But unlike the winter of 2017, this year, the government has not limited refinery runs in order to boost the domestic economy, thereby increasing supply in the domestic market.
The new allocation will lift the total export quota in 2018 to 48 million mt and help offset oversupply in the domestic market.
The new quotas are shared by state-owned CNPC, Sinopec, Sinochem, CNOOC and China National Aviation Fuel, but quota allocation by product was unclear.
GASOLINE, GASOIL SURPLUS
Sources with two quota holders said the latest quotas were likely to cover both gasoline and gasoil, without any specific split between the two, and this is likely to result in a strong rise in product exports from China in December.
Several quota holders held meetings last night to figure out export plans for next month, sources said.
"We have already doubled our December gasoil export plan to 120,000 mt, thanks to the last quota," a source with Sinopec's Shanghai Petrochemical said Wednesday.
Meanwhile, CNOOC was expected to resume gasoline and gasoil exports next month with the new 240,000 mt quotas, sources said. The company had suspended exports due to no quota availability. It's monthly gasoline and gasoil exports could hit 190,000 mt and 180,000 mt respectively, they added.
The WEPEC source also said they will lift their gasoline and gasoil exports in December with the new quotas.
Without the fourth round of quotas, China's monthly average of quota availability was only 776,000 mt for gasoline and 1.02 million mt for gasoil over November-December. These were far below the average exports of 1.1 million mt for gasoline and 1.57 million mt for gasoil over January-October.
BEARISH ASIAN MARKET
The FOB Singapore 92 RON gasoline crack spread against front-month ICE Brent crude oil futures -- which measures the relative value of the refined product to crude oil - has been on a downward trajectory since the start of November and even went into negative territory for the first time in nearly seven years, tumbling to minus $1.17/b on November 8, S&P Global Platts data showed.
The spread rose marginally by 4 cents/b to 2 cents/b at 0830 GMT close of Asian trade Tuesday, stepping out of the negative territory momentarily, Platts data showed.
Month to date, the FOB Singapore 92 RON gasoline crack against front-month Brent futures averaged around 60 cents/b, down 94% from $10.30/b a year ago, the data showed.
The Asian gasoil market has also been under sustained pressure since late October. Market participants said many barrels are struggling to find homes due to falling demand from Taiwan and Australia by year-end, while regional refinery production levels were healthy following the end of the autumn turnaround season.
"Clearly there is very poor demand [for gasoil] in North Asia," an industry source said Tuesday.
The weakness has been reflected in the benchmark FOB Singapore 10 ppm sulfur gasoil cash differential sinking to an all-time low of a discount of 40 cents/b to MOPS Gasoil, basis the new 10 ppm assessment, at the Asian close on Monday.
This is the lowest the cash differential for the benchmark 10 ppm sulfur grade has been since the sulfur content for Platts benchmark gasoil was changed to 10 ppm from 500 ppm on January 1. - Platts -