Reuters reported on Oct. 1, citing multiple sources, that state-owned refiner PetroChina canceled a significant portion of gasoline and jet fuel cargo loadings scheduled for October on Sept. 30. Zhejiang Petrochemical (ZPC), a major private refiner, is also said to have scheduled no oil product loadings at all during the holiday period.
Authorities have yet to issue approvals for October exports of oil products bound for destinations outside Hong Kong and Macau. Beijing reportedly plans to review inventory levels and refinery run rates after the National Day holiday ends on Oct. 7 before deciding whether to resume exports.
Global oil prices surged across the board. The price spread between October and November Asian gasoil swaps hit its highest level in two weeks. Reuters forecast that the move could push fuel prices in some countries to record highs.
The ostensible reason for China's export halt is to secure domestic volumes amid mounting uncertainty over crude procurement. But because the move came even after Washington asked Beijing to expand oil product exports at the U.S.-China summit late last month, some read it as a card aimed at President Donald Trump, who faces growing pressure from high oil prices ahead of the midterm elections.
Supply at danger levels as Russian, Middle East refining falters
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Retaliatory U.S. diesel export ban would amplify fallout
China, the world's largest refiner by capacity, has halted exports of oil products to countries including the United States this month. Analysts say Beijing is seeking to stabilize domestic supply while using its energy clout as leverage to ratchet up pressure on Washington.
Reuters reported on Oct. 1, citing multiple sources, that state-owned refiner PetroChina canceled a significant portion of gasoline and jet fuel cargo loadings scheduled for October on Sept. 30. Zhejiang Petrochemical (ZPC), a major private refiner, is also said to have scheduled no oil product loadings at all during the holiday period.
Authorities have yet to issue approvals for October exports of oil products bound for destinations outside Hong Kong and Macau. Beijing reportedly plans to review inventory levels and refinery run rates after the National Day holiday ends on Oct. 7 before deciding whether to resume exports.
Global oil prices surged across the board. The price spread between October and November Asian gasoil swaps hit its highest level in two weeks. Reuters forecast that the move could push fuel prices in some countries to record highs.
The ostensible reason for China's export halt is to secure domestic volumes amid mounting uncertainty over crude procurement. But because the move came even after Washington asked Beijing to expand oil product exports at the U.S.-China summit late last month, some read it as a card aimed at President Donald Trump, who faces growing pressure from high oil prices ahead of the midterm elections.
Indeed, the move rattled a global oil products market already squeezed by two wars — between the U.S. and Iran, and between Russia and Ukraine. Singapore gasoline, the Asian benchmark, jumped 7.4% on the day, while gasoil rose 3.1%. Prices spiked as China, which had kept supplying oil products on the back of massive inventories even after the conflicts began, abruptly shut its export door. That suggests China has become a swing producer on par with Saudi Arabia.
Even before Chinese oil product exports were blocked, global supply had reached dangerous levels. Russia, the world's third-largest refiner, is short of fuel for its own use as it trades energy strikes with Ukraine. Moscow has restricted gasoline exports through late January and gasoil exports through the end of October. With Middle Eastern producers' refining capacity curtailed by the U.S.-Iran war, the United States — home to the world's second-largest refining capacity — has hit its limits. The Wall Street Journal reported that U.S. refineries are running at 97%, an overheated level.
China, by contrast, is said to have more slack than the U.S. That is why some see the 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. A substantial amount of export quota also remains unused, a legacy of the blanket export ban imposed early in the conflict.
For the Trump administration, grappling with falling approval ratings just five weeks before the midterm elections, the Chinese move is an unexpected blow. Trump had considered banning U.S. diesel exports but held off in the face of fierce opposition from the domestic refining industry. As an alternative, the administration is stepping up pressure on Europe to release stockpiled diesel.
A prolonged Chinese embargo could in particular prod the election-pressed Trump administration into banning U.S. diesel exports. "White House staff are opposed, but everything depends on Trump," one source said. "An export ban is still on the table."
Experts say that if Washington restricts diesel exports, U.S. prices would be contained only briefly while the rest of the world suffers knock-on damage, starting with Europe, which is already short of diesel. Robert McNally of U.S. consultancy Rapidan Energy Group told The New York Times that "the rest of the world outside the U.S. has no choice but to absorb the full brunt of an enormous increase in diesel prices."
