China unexpectedly suspended exports of refined products for October, despite an earlier plan to export about 1.2 million mt for the month. The move also runs counter to swirling expectations of a third batch of export quotas, and comes on the back of increased exports, especially of diesel, since August.
The impact of this move is expected to be most keenly felt in an already tight diesel market that has seen the product's cracks hit multiple record highs, with the front-month Singapore 10ppm gasoil/Dubai crack hitting around $80/bbl and averaging around $75/bbl in September, well above the August average of around $68/bbl.
Diesel supplies are already severely crimped by a lack of outflows from the Middle East, where cargoes are unable to exit the Arab Gulf, and from Russia, which has extended its export ban by another month to October and turned importer due to Ukrainian attacks on its oil infrastructure, amid the peak winter demand season in Europe.
On top of all these factors, the US, a major supplier to Europe, is mulling an export ban in a bid to rein in spiralling domestic prices that have hit record levels.
All these factors lead to an extremely bullish outlook for the product during the winter, despite best efforts by Europe to rein in the spiralling prices, including considering fuel rationing and deferring refinery maintenance, among other measures.
Effectively, this leaves Europe with supplies from Asia – notably India, South Korea and Singapore – to meet its winter demand of over 5 million mt/month. And it will have to compete with demand from Asia-Pacific consumers such as Australia and Indonesia. On top of that, not all of the Asian suppliers are able to meet Europe's winter specifications for diesel.
However, China's move to suspend loadings could be short-term. The Commerce Ministry has decided not to issue fresh export licences to exporters for October only – effectively, this means that companies that have exhausted their export quotas will not be able to export, but those who still have remaining quotas, from the second batch of issuance, can continue to do so.
The market is anticipating that China will issue a third batch of export quotas for November and December exports, though the volume remains unclear, with players expecting 5-9 million mt of refined products.
