Asia's Crude Oil Refiners Profit as China's Fuel Exports Fade: Russell
11.15.2021 - NEWS

November 15, 2021 [zawya] – China’s exports of refined fuels dropped in October to 3.95 million tonnes, snuffing out what was a slight rise in shipments in September and reverting to the declining trend seen since April.


The past four months have been the weakest for fuel exports from China since a slump in mid-2020. That was largely the result of plummeting fuel demand across Asia as many countries locked down their economies in a bid to combat the coronavirus pandemic.

October’s exports of refined products were also nearly a third below the same month in 2020. Although the year-to-date figure is still up 3.8%, this is a reflection of strong exports in the first half of 2021.

There are several reasons for China’s decline in fuel exports in the second half of this year – but chief among them is lower refinery utilisation as independent refiners exhausted crude import permits and had to cut throughput.

A shortage of power because of constrained coal supplies also impacted refineries, with September processing of 13.64 million barrels per day (bpd) being the lowest in 16 months.

The decline in China’s refined product exports has coincided with stronger demand in Asia, which has in turn boosted margins at the region’s export-oriented refineries, notwithstanding the rally in crude oil prices.

A measure of the profit of turning a barrel of Dubai crude into products at a Singapore refinery REF/MARGIN1 stood at $6.46 a barrel in early Asian trade on Thursday, while the 15-day moving average was at $7.80.

As recently as June, the profit margin was as low as $1.37 a barrel for the month. The recent peak of around $8.44 in late October was the highest since September 2019.

It’s perhaps no surprise that refinery margins peaked in October, as Chinese fuel exports were slipping.


A look at the main fuels of gasoline and gasoil – the middle distillate building block for diesel and jet kerosene – shows strong rallies from mid-August.

The profit of making gasoline from Brent crude in Singapore GL92-SIN-CRK peaked at $18.72 a barrel on Oct. 27, the most since June 2015. That represents a sharp reversal from the loss of $13.15, hit during the height of the pandemic lockdowns in April last year.

The margin on gasoil reached $13.88 a barrel on Nov. 9, the highest since January 2020 and also a major turnaround from the low point of a loss of 63 cents a barrel seen in May last year.

There was more good news for refiners in Asia. India’s fuel demand rose in October to the highest in seven months as economic activity recovered in the world’s third-biggest oil consumer.

Outside China, there are also encouraging signs of a recovering demand for fuel in Asia. Refinitiv Oil Research forecasts crude imports will rise in November from October in Japan, South Korea, Singapore and Taiwan – Asia’s biggest importers behind China and India.

A ongoing recovery in fuel demand as more countries in Asia fully re-open their economies should help keep refinery margins elevated.

The ‘X-factor’ is whether Chinese refiners will return to the export market to capture some of the strong margins currently on offer.

Certainly, independent refiners were granted more import quotas to be used prior to the end of the year. But it’s also likely that the authorities in Beijing will prioritise domestic fuel supplies in order to ensure no supply issues over winter.

It may take until after the winter demand peak for Chinese refiners to make their presence felt again in Asia’s refined fuels markets.

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