China’s Rising Fuel Exports Ease Global Supply Shortages
As winter approaches in the northern hemisphere, the oil sectors in the U.S. and Europe are relying on increased exports from Chinese refineries to alleviate the tight global supply of diesel and jet fuel. China, known as the world’s largest energy consumer and top oil importer, has recently become an important fuel exporter due to its growing refining capacity.
China’s Emergence as a Fuel Exporter
In 2022, Chinese fuel exports played a crucial role in mitigating the disruptions caused by Russia’s invasion of Ukraine and subsequent sanctions imposed on Russian crude and fuel imports by major importers worldwide. Alongside the mild winter weather, these exports helped avert widespread shortages of diesel, heating oil, and gasoil.
The Russian ban on diesel exports ahead of winter has raised concerns about another supply shock. With high diesel prices in Europe and the Americas due to seasonal refinery shutdowns and strong demand, countries like Brazil and Turkey, which have been importing fuel from Russia, may turn to other suppliers. This increased competition in fuel markets could drive up prices.
China’s Growing Fuel Exports
Despite U.S. distillate inventories being slightly higher than last year, the ramping up of Chinese fuel exports is expected to prevent severe shortages. In October, China’s fuel exports are projected to rise by approximately 519,000 barrels per day (bpd), with diesel exports increasing by around 160,000 bpd. The first nine months of 2023 saw total diesel exports rise by over 200% compared to the same period in 2022, reaching 250,000 bpd.
China is well-positioned to profit from diesel margins, currently at $18 per barrel. Although this is half of last year’s peak, the margins continue to rise steadily and remain higher than historical levels. Matt Smith, lead oil analyst at Kpler, states that an uptick similar to last year’s is being observed once again.
Factors Alleviating Global Distillate Supplies
China’s fuel exports are subject to quotas closely monitored by the global fuel trading community. Beijing recently issued a third batch of fuel export quotas, with traders eagerly awaiting the possibility of a fourth batch. Additionally, China has quotas for importing crude, a necessary component for producing diesel and other products. The issuance of a fourth batch of 2023 crude import quotas may further contribute to fuel exports.
China, home to the second-largest oil refining industry globally, has been importing record volumes of crude from countries under Western sanctions. The availability of cheaper crude from Russia, Iran, and Venezuela has saved importers close to $10 billion this year, resulting in larger profit margins for refiners and incentivizing increased fuel output.
Moreover, the addition of refining capacity in countries like Kuwait has helped alleviate tight global distillate supplies. As China supplies more to Asia, Middle East refiners are shifting their focus to markets in Western Europe and America.
Tight Diesel Inventories and Outlook
Despite efforts by refiners to maximize output ahead of winter, diesel and heating oil inventories remain tight in various regions. The U.S. East Coast has faced challenges in replacing the void left by refinery outages, with long-haul cargoes falling short of expectations. Currently, diesel inventories on the East Coast are around 28.16 million barrels, within 1 million barrels of last year’s historic lows.
In conclusion, China’s increasing fuel exports are playing a crucial role in easing global supply shortages of diesel and jet fuel. As the northern hemisphere braces for winter, the rise in Chinese exports offers hope of preventing severe shortages and stabilizing fuel prices.
