Shrinking Chinese Fuel Inventories Raise Chance of Export Curbs

China's petrol and diesel inventories are diminishing as refiners face a tightening domestic market, potentially leading to the government restricting fuel exports once again. State-owned fuel suppliers saw a 2.9% drop in petrol stockpiles last week, reaching their lowest level since 2022, according to JLC International. Diesel holdings also fell 2.4% to a 15-month low.

Traders are noticing fewer domestic offers for diesel, as market participants attempt to balance inventories and consider withholding supplies for future sales. Beijing previously imposed swift curbs on oil product exports during the early stages of the US-Iran war, depriving Asian buyers of essential fuel but also helping maintain global crude prices.

Restrictions were later eased, and shipments of petrol, diesel, and jet fuel – known as clean products – rebounded to a combined total of 2.55 million tons in July, as per the latest Chinese customs data. Analyst Jianan Sun from Energy Aspects in London warns that with the domestic market tightening, Beijing might limit monthly clean product exports to approximately 1.2 million tons during the fourth quarter.

Chinese independent refiners have lost access to Iranian crude due to the US blockade, pushing up oil premiums from Africa and Latin America as Chinese buyers seek alternative barrels. The situation is so dire for independent refiners that they may need to reduce run rates in the coming weeks. China's government tightly controls the amount of fuel refiners can export, allowing shipments only if inventories remain elevated.

However, with some oil now passing through the Strait of Hormuz, volumes remain well below pre-war levels, and recent events such as the closure of Saudi Arabia's East-West pipeline and Houthi territorial gains in Yemen threaten shipments via the Red Sea.