China's surging imports of crude oil this year are the major driver of higher prices on the demand side, but the flip side to this is soaring Chinese fuel exports that are hurting profit margins at regional refiners.
The world's largest crude importer took in 9.1 million barrels per day (bpd) in the first quarter, up 7 percent from the same period in 2017, according to customs data.
Exports of refined products, however, have jumped by even larger margins, with shipments of gasoline and diesel reaching record highs in March, according to the data released on Monday.
Gasoline exports were 1.7 million tonnes in March, or about double what they were in the same month last year. In the first quarter, China shipped 3.6 million tonnes of gasoline, or about 312,000 bpd, and some 43 percent above the 216,000 bpd exported in the same period of 2017.
Diesel exports were 2.4 million tonnes in March, equivalent to about 580,000 bpd, with shipments around 392,000 bpd in the first quarter, a gain of some 12 percent on the year-ago period.
Taking all oil products together shows that China's exports in the first quarter were 1.27 million bpd, up almost 20 percent on 1.06 million bpd shipped in the same period last year.
Looking at crude import numbers along with the product exports shows that of the additional 600,000 bpd of crude oil imported in the first quarter, about 210,000 bpd was exported as additional refined fuels.
It appears that this rising supply of oil products from China has weighed somewhat on regional prices, especially in gasoline, which has witnessed the biggest increase in exports from China.
The profit margin, or crack, on producing a barrel of 92-RON gasoline from Brent crude in Singapore , the regional benchmark, slumped to the lowest in 20 months on April 19, hitting $5.42 a barrel.
It has since recovered somewhat to $6.50 a barrel as of Monday, but it's still almost 60 percent below the recent peak of $16.34, reached in August last year.
Diesel has fared better, with the profit margin in Singapore for a barrel of gasoil, the term for diesel before retail additives are added, ending at $14.80 on Monday.
This is slightly higher than the $14.27 a barrel at the end of last year, and also up from the low so far this year of $13.17, reached in early March.
GET USED TO CHINA EXPORTS
The difference between the gasoline and diesel markets this year is that the region has had to absorb a sharp increase in Chinese gasoline exports, but not so much of diesel.
And now, product prices are still high enough to prompt Chinese refiners to export refined fuels.
The ability of China's refiners to export fuels has been aided by the higher crude import quotas granted this year to smaller, independent refiners, by the authorities in Beijing.
There may be some temporary relief for the region's other exporters of refined fuels, such as Singapore, South Korea, Japan and India, as some Chinese plants enter scheduled maintenance.
This should lower the processing rate at Chinese refineries, which hit a record 12.13 million bpd in March, above the previous high of 12.03 million bpd in November 2017.
What is becoming increasingly clear, though, is that China is emerging as a major player in the markets for refined fuels in Asia, especially since the authorities seem ready to allow refiners to import more crude and export surplus products.
By Clyde Russell