CLYDE RUSSEL: Asian refiners cash in on China’s plunging diesel exports
Singapore refineries are among those benefiting from the slump
Slumping diesel exports from China are proving a boon to other refiners in Asia, with the profit from producing the fuel rising to the highest in 18 months.
China has been Asia’s second-highest exporter of gasoil, the building block for middle distillate fuels that include diesel, heating oil and jet kerosene, but its shipments have slumped in recent months amid lower refinery processing and a lack of export permits.
China’s diesel exports dropped in August to the lowest since May 2015, slumping to 540,000 tonnes, equivalent to about 135,000 barrels per day (bpd), from 1.39-million tonnes in July, according to official customs data released on Saturday.
Diesel exports have been on a downward trend since March 2021, when they were 2.81 million tonnes, or about 680,000 bpd. The total for the first eight months of the year is now 3.5% below the same period in 2020.
A recovery in China’s diesel exports isn’t on the cards for September, with commodity consultants Kpler estimating shipments of about 134,600 bpd, roughly in line with August’s depressed level.
The absence of Chinese cargoes is boosting profits for other export-focused refiners in Asia, with the crack, or profit margin, for producing a barrel of gasoil from Dubai crude at a Singapore refinery rising to an 18-month high of $7.96 a barrel on Friday.
The crack did slip back a tad to $7.92 on Monday, but it is still more than double the 2021 low of $3.44 a barrel recorded on August 24. That’s a rally of 130% in the past four weeks.
The move has helped drive overall profits for a typical Singapore refinery using Dubai crude to more than double the average for the past year.
The overall margin for refining a barrel of Dubai was $5.54 on Monday, up from an average of $3.19 for August and $2.04 for the past 365 days.
While the profit for producing diesel is recovering, the same cannot be said for petrol, with the crack for making the motor fuel from Brent crude at a Singapore refinery dropping to $6.87 a barrel on Monday, down from a 2021 peak of $9.92 on August 5.
China’s exports of petrol have also been declining, dropping to 570,000 tonnes, or about 156,000 bpd, in August, from 740,000 tonnes in July and the lowest since February 2019.
Petrol exports have been in a downward trend since January, when they were 1.89-million tonnes, equivalent to about 518,000 bpd.
It’s not just China that is exporting less petrol, with shipments from India expected by Refinitiv Oil Research to drop for a fourth straight month in September, while Singapore is also forecast to export less in September than in August.
However, Asian petrol demand has been more affected by the ongoing coronavirus pandemic than has demand for diesel.
Petrol is mainly used to power light vehicles, and lockdowns mean fewer people are using cars.
Diesel is more used in industrial activities, such as construction, heavy vehicle transportation and mining, sectors that have been able to recover from the pandemic.
Asia’s overall fuel demand has been lagging the recovery seen in Europe and North America, given several major countries remain in some form of lockdown.
As can be seen by the differing fortunes of diesel and petrol, the recovery is likely to be uneven and largely dependent on how successful vaccination efforts are across the region.
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