Three Chinese state oil refineries and a private refinery are considering increasing output by 10% in October as they expect foreign demand will be stronger.
“We’re raising runs next month in preparation for a possible opening in exports, though nobody has a clear idea how big the opening would be,” a state refinery official said.
Chinese refiners are expecting Beijing to release up to 15 million tonnes worth of oil product export quotas for the rest of the year to support the no-2 economy’s sagging exports.
Such a move would signal a reversal in China’s oil products export policy, add to global supplies and depress fuel prices.
After a recent slide in benchmark Brent crude prices to below $100 a barrel, Chinese refiners have taken arbitrage opportunities to boost stockpiles, traders said, booking supertankers to haul crude oil to China from the Americas and Middle East.
Refiners Get Ready
A second official at another state refinery said his plant is also planning about an 8% hike in throughput next month, but added that the plan had been driven by firmer domestic margins.
A third state refinery expects to restart a 60,000-bpd crude unit next month after maintenance, one of the sources said.
China’s single largest refinery, Zhejiang Petrochemical Corp, which is capable of processing 800,000 barrels per day of crude, is aiming to ramp up runs in the coming months from the current levels of 700,000-750,000 bpd, according to two sources familiar with its operations.
Average refining rates at China’s state-owned refineries climbed to nearly 74% as of last week, up 2.6% from end-August, according to Chinese brokerage SHZQ Futures.
The rebound in China’s crude demand has boosted the lump-sum freight rates for Very Large Crude Carriers (VLCC) sailing from the US Gulf and the Middle East to China to their highest since May 2020 at about $10 million, according to data from Simpson Spence Young on Refinitiv Eikon.
“I believe that China-bound freight rates strengthen on the hope of a China demand recovery… the rumour of an extra large amount of product exports in Q4 also fuelled market optimism,” Emma Li, an analyst from Vortexa Analytics, said.
US crude arriving in China in October is expected to hit the highest since December 2020 at 450,000 bpd, up from about 300,000 bpd in the August-September period, Vitkor Katona, lead crude analyst from analytics firm Kpler, said.
Onshore crude inventories in China fell to about 986 million barrels in mid-September, down 6% from a peak of 1,049 million barrels at end-June, according to data analytics consultancy Kayrros.
- Reuters, with additional editing from Alfie Habershon