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China Boosts Fuel Export Quotas as Domestic Demand Peaks

China has taken measures to issue increased quotas for fuel exports, responding to the peak in domestic demand by seeking to expand its presence in foreign markets. As the nation’s refineries grapple with balancing supply and demand, this move is aimed at maintaining stability and bolstering the refining sector.

According to industry experts at JLC and OilChem, the Chinese government has granted authorization to seven refineries and traders to export a combined total of 12 million tonnes of gasoline, diesel, and jet fuel. This allocation, designated for the third quarter of 2023, exceeded market expectations, which had initially anticipated a quota of 10 million tonnes. Consequently, the total volume of oil permitted for export this year surpasses 2022 levels.

The Chinese Ministry of Commerce, responsible for overseeing oil allocations, has refrained from commenting on the report, leaving room for further interpretation and analysis.

This increase in export quotas coincides with a critical juncture for China’s downstream oil industry, as domestic demand is anticipated to reach its peak in 2023. This is a pattern that has been observed in previous years when export quotas were allocated to bolster the refining sector and sustain economic growth. The latest round of quota issuance has brought the total for 2023 to 39.99 million tonnes.

China currently grapples with a real estate crisis and lackluster export figures, both of which have impacted the consumption of industrial fuels such as diesel. Additionally, the growing adoption of electric vehicles in China has contributed to a decline in gasoline demand.

Further exacerbating the situation is the introduction of new refining capacity, particularly led by PetroChina Co in Guangdong Province. This surge in capacity may lead to an oversupply of oil products within China, incentivizing more exports to global markets. Notably, JLC reports that five out of seven companies have been allocated a quota for the export of low-sulfur fuel, totaling 3 million tons.

The Energy Aspect, an industry analyst, predicts that Chinese refining plants will accelerate their export activities in September to counter lower volumes and margins experienced in August. This is expected to result in a 15% increase in gasoline, diesel, and jet fuel sales, amounting to approximately 3.7 million tonnes.

As China seeks to balance its domestic fuel demand with burgeoning refining capacity, the global fuel market will be closely monitoring how these developments impact international supply and demand dynamics in the coming months.

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