China has lifted an unexpected suspension on its refined product exports and issued a new 3rd batch of export quotas, though at a significantly lower volume than the market had initially expected.
Along with Europe’s move to release 100 million barrels oil, including 50 mill barrels of diesel, from it’s strategic reserves and US President Donald Trump’s announcement that Russia will export 300,000 mt of diesel “imminently” this month, followed by another 500,000 mt in November and another million m “immediately thereafter”, the diesel market has since softened.
As a result, diesel margin weakened, with its front-month cracks at fell to around $60/bbl, down from record high levels of above $70/bbl.
China issued a 3rd batch of export quotas, for 4.5 million mt of refined products, effectively quelling expectations of an export suspension that swirled just before the Golden Week holidays a week earlier.
However, the volumes, which are only for 7 large oil companies including 6 state-owned corporations and a single private one, are well below the 9 million mt that the market had expected earlier.
Wood Mackenzie Maritime Research believes that the confusion stemmed from market chatter that China’s Commerce Ministry will not issue fresh export licences to exporters for October loading cargoes, essentially preventing companies that have exhausted their export quotas from exporting.
However, another government entity, the NDRC, had earlier approved an export plan for October, including from 1.2 million mt of diesel.
This conflicting move, on the eve of the Golden Week holidays, sparked confusion in the market until the holiday was over on Oct 8.
By then, the two powerful government bodies had come to a compromise- refiners will be allowed to export, hence cashing in on the strong product margins, according to the approved October export plan.
However , they will receive a much lower quota, addressing the Ministry’s concerns of insufficient supply for the domestic market.
Wood Mackenzie Maritime Research understands that the full export plan for October is at about 3.7 million mt of refined products.
This would leave just 800,000 mt for November and December based on the latest export quota.
However, Wood Mackenzie Maritime Research understands that there is likely to be at least another batch of export quotas, with the current quota release being only about 54% of the corresponding batch in 2025.
Despite the increased supply, the diesel market remains tight against the backdrop of peak winter heating demand in Europe while outflows from the Middle East remain severely curtailed as cargoes still being unable to exit the Arab Gulf following the closure of the Strait of Hormuz amid continued US-Iran hostilities.
It also remains to be seen if Russia, which had extended its diesel export ban through January 2027, and amid continued Ukrainian attacks on its oil refining infrastructure.
