BEIJING — China, which holds the world's largest refining capacity, has halted exports of refined petroleum products to countries including the United States starting this month. Analysts say Beijing is seeking to stabilize domestic supply while using its energy clout as leverage to increase pressure on Washington. Meanwhile, U.S. President Donald Trump said negotiations with South Korea "continue to get better" and that $8.4 billion (about 11 trillion won) would be invested in an "enhanced oil recovery project," raising concerns that another unilateral investment announcement had been made.
Reuters reported on the 1st, citing multiple sources, that state-run refiner PetroChina on the 30th of last month canceled a substantial portion of gasoline and jet fuel cargo shipments scheduled for October. Zhejiang Petroleum & Chemical (ZPC), a large private refiner, is also said to have scheduled no refined product shipments at all during the holiday period.
Authorities have yet to issue approvals for October exports of refined products bound for destinations outside Hong Kong and Macau. They are expected to decide whether to resume exports after reviewing inventory levels and refinery utilization rates following the end of the National Day holiday on the 7th of this month.
International oil prices surged across the board. The price gap between October and November Asian diesel swaps reached its highest level in two weeks. Reuters projected that the measure could push fuel prices in some countries to record highs.
China's stated reason for curbing exports is securing domestic supply amid growing uncertainty over crude procurement. But because the move came even after the United States requested an expansion of refined product exports at the U.S.-China summit late last month, some read it as a card aimed at Trump, who faces mounting pressure from high oil prices ahead of the midterm elections.
The measure shook once again a global refined products market already strained by supply disruptions from "two wars" — between the United States and Iran, and between Russia and Ukraine. Singapore gasoline prices, the Asian market benchmark, jumped 7.4% that day, while diesel prices rose 3.1%. Prices surged because China, which had supplied refined products on the strength of massive inventories even after the wars began, abruptly closed the door on exports. The development supports the view that China has become a "swing producer" rivaling Saudi Arabia.
Even before Chinese refined product exports were blocked, global supply had reached dangerous levels. Russia, which ranks third in the world in crude refining capacity, is short of fuel for its own use as it wages an "energy strike war" with Ukraine. Russia has restricted gasoline exports until the end of January next year and diesel exports until the end of October. With refining capacity in Middle Eastern oil producers curtailed by the U.S.-Iran war, the United States, which ranks around second in global refining capacity, has hit its limits. The Wall Street Journal reported that U.S. refinery utilization now stands at 97%, an overheated level.
China, by contrast, is believed to have more room. That is why some interpret the latest move as an attempt to seize petro-hegemony. According to crude and energy analytics firm Vortexa, Chinese refiners are running at only about 75% of maximum capacity. Significant export quotas also remain unused, a legacy of the blanket export ban imposed early in the wars.
For the Trump administration, struggling with falling approval ratings just five weeks before the midterm elections, the development amounts to an unexpected blow from China. Trump had even considered banning U.S. diesel exports but halted for now in the face of fierce opposition from the U.S. refining industry. As an alternative, the administration is raising pressure on Europe to release stockpiled diesel. A prolonged Chinese embargo could in particular provoke the election-pressed administration into banning U.S. diesel exports.
Other countries have begun responding to the U.S. threats. Reuters, citing sources, reported that EU member states discussed plans to release diesel inventories under French leadership. The leading option calls for EU countries to release 50 million barrels of diesel and International Energy Agency (IEA) members to release 50 million barrels of crude. Russia, which had restricted diesel exports through October, said it would consider partially lifting the curbs.
Against this backdrop, Trump said on social media platform Truth Social on the 2nd that negotiations with South Korea "are getting better" and that "$8.4 billion is going into an enhanced Oil Recovery Project. Oil and gas production will increase." The remarks are seen as referring to part of the $50 billion Alaska liquefied natural gas (LNG) project that the administration announced unilaterally last month.
