Chinese refiners said to suspend October fuel exports to bolster stocks

Chinese refiners have halted oil product exports for October in a bid to bolster domestic stocks, a step that will tighten already constrained fuel markets. Beijing imposed export restrictions in March following the onset of the Iran war, which disrupted Middle Eastern crude supplies. The world's leading importer lifted these curbs in July and now manages fuel shipments monthly.

However, China began a week-long holiday on Thursday without granting approval to major refiners, excluding Hong Kong and Macau, to export fuel products to other regions in October, according to four sources. It remains unclear whether Beijing will resume allowing exports post-holiday, contingent on domestic fuel inventories and refining output.

The National Development and Reform Commission has yet to comment on the matter. This move by China, amidst global markets grappling with fuel supply losses from the Iran war and Russia's attacks on refining infrastructure, could push prices in certain countries to unprecedented highs. China's emphasis on domestic supply security over international markets underscores the government's priorities.

While refiners might benefit from strong export margins, China's capacity to ramp up refining and exports is limited unless domestic stocks are sufficient, says Michal Meidan, head of China energy research at the Oxford Institute for Energy Studies. The pause in exports follows President Xi Jinping's recent visit to Washington, where he was urged by President Donald Trump to aid global fuel supply stabilization.

US Energy Secretary Chris Wright noted a loss of diesel exports from the Middle East and China, with Washington anticipating announcements from Europe about additional diesel supplies. In anticipation of potential US diesel export bans, Germany and France have been directed to draw down emergency diesel inventories. October-November price spreads for Asian diesel swaps hit a two-week peak, driven by expectations of absent Chinese export supplies.

PetroChina, a state oil major, canceled several gasoline and jet fuel shipments planned for October, as reported by three sources. Another major refiner, privately-controlled Zhejiang Petrochemical Corp (ZPC), refrained from scheduling any oil product shipments during the holiday week. Despite China's largest refining capacity globally, fuel export volumes have historically lagged behind India and South Korea among Asian processors.

Beijing's focus on supply security, prompted by uncertainty over crude availability and dwindling local fuel inventories, has led to the current export halt. Commercial gasoil and diesel inventories in China are approximately 20 million barrels below the pre-war threshold, with gasoline roughly 9 million barrels short, according to Zameer Yusof, a senior manager for clean oil products at Kpler.

For September, 1.4 million metric tons of diesel, 500,000 tons of gasoline, and at least 2 million tons of jet fuel, including bonded volumes to Hong Kong and Macau, have been loaded, a decline from August. Singapore, Malaysia, Australia, Vietnam, Bangladesh, and the Philippines were among the primary destinations for Chinese fuel exports in September, as per trade estimates from Kpler and LSEG.

Korea's refiners may help bridge the gap, although their spot volumes will be constrained by term commitments. Bangladesh, reliant on China's Unipec and PetroChina for a third of its refined fuel imports, has not received any communication from these entities, a senior energy official disclosed, suggesting alternative fuel sources could be utilized if necessary.