Higher Chinese exports ease Asian gasoil tightness

Tightness in the Asian gasoil market has eased with expectations of additional exports from China in the coming months. Concerns about the impact of a second wave of Covid-19 infections across the region is also casting doubt about gasoil demand.

The Singapore gasoil August-September time spread narrowed yesterday to parity, based on Argus assessments. The Asian gasoil market moved into backwardation during early June, with prompt prices at a premium to forward prices, making it unviable to store the product.

China's gasoil exports are expected to rise in August from relatively low volumes during June-July, said market participants. Flooding in parts of south and central China along the Yangtze river, the worst in 30 years, has eroded fuel demand and caused oil product stocks to rise.

Despite fragile domestic demand, China's refinery runs hit record highs of 14.1mn b/d in June and are likely to remain close to this level for July. Gasoil production was at a 16-month high of 3.616mn b/d in June, according to the national bureau of statistics. The country's gasoil exports are expected to reach 1.3mn-1.5mn t (313,000-361,000 b/d) in August amid firming export margins.

The Chinese government granted close to 56mn t of oil product export quotas in the first two batches this year, up by nearly 12pc from the first two batches awarded last year. The country exported 27.01mn t of gasoline, gasoil and jet fuel during January-June, according to Chinese customs data. The market expect the country's oil products' export volume to hold firm during the rest of this year.

Additional supplies from China has eased the tightness in Asia-Pacific. Major suppliers in northeast Asia — Japan, South Korea and Taiwan — have reduced exports since this year's coronavirus outbreak because of weaker demand and lower refinery run rates. Taiwanese private-sector refiner Formosa, a key exporter of products to Asia-Pacific, has slashed August exports further following a fire at its Mailiao refining complex earlier this month.

Gasoil demand across Asian countries has recovered from the peak of the coronavirus outbreak, but the market remains cautious because of fears of a second wave of Covid-19 infections. Australia and Vietnam are the latest countries to have curbed movements in certain cities after a spike in new cases.

By Yawen Lu