Chinese refiners boost diesel output to profit from robust export margins

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A pumpjack is seen at the Sinopec-operated Shengli oil field in Dongying, Shandong province, China on Jan 12, 2017.

SINGAPORE: China’s refined oil product exports in November are set to hit the highest since Apr 2020 as refiners ramp up output to multi-month highs to boost diesel supply and profit, offsetting the impact of slower domestic demand from COVID-19 restrictions.

The world’s top two refiners – the United States and China – are processing more crude to meet higher diesel use globally this winter as countries switch to oil for heating, away from more expensive natural gas. The increased output could also cool prices for other oil products, especially for gasoline, and dampen overall refining margins.

China’s crude oil throughput could rise by up to 500,000 barrels per day (bpd), or 4 per cent this month over October, as two new refineries – PetroChina Guangdong Petrochemical and private firm Shenghong Petrochemical – prepare to start operations, three Beijing-based industry sources told Reuters.

Half of the increase, though, will still come from Asia’s biggest refiner Sinopec, one of them said, as it raises output to produce more diesel and raise fuel exports.

“Crude runs are estimated to increase to around 14.4 million bpd in November,” said senior analyst Daphne Ho at consultancy Wood Mackenzie.

That compares with around 13.8 million bpd of throughput in September. Official output data for October will be released on Nov 15.

Sinopec’s major coastal plants are expected to raise throughput moderately or extend high operation rates from October, with production geared towards diesel at the expense of gasoline, company sources told Reuters.

“Gasoline demand is not good but diesel inventories are thin. So the mandate from the headquarters is to boost diesel production to supply the domestic market and also to raise exports,” one of the Sinopec sources said.

A Sinopec spokesperson declined to comment.

Further boosting supply, China’s largest private refiner Zhejiang Petroleum and Chemical (ZPC) is raising diesel output by cutting petrochemical production.


With the rise in production, exports of diesel, gasoline and aviation fuel may top 6 million tonnes in November, the highest since the early days of COVID-19 in Apr 2020, according to estimates by analysts and China-based industry sources.

Diesel exports may reach 1.8 million to 2.2 million tonnes for the month, the highest since Jun 2021, according to estimates by Wood Mackenzie, JLC and Refinitiv, as refiners are lured by gasoil, or diesel, refining profits that have more than tripled in Asia this year.

Chinese shipments are mostly destined for Southeast Asia in October and November, data from Refinitiv and Kpler showed, as the arbitrage window – which determines if a commodity can be shipped from one geographic region to another at a profit – to the West is closed.

Gasoline exports could rise to as much as 2 million tonnes – a level last seen two years ago – as overseas sales are still more lucrative compared to the local market, according to Chinese consultancy JLC and two China-based trading sources.

“Refiners were rushing to use up the (export) quotas, attracted by the good margins, while tepid demand at home was another push factor,” said a Beijing-based trade source.

China has stuck to a strict COVID-19 containment policy for almost three years, even as economic damage mounts and frustration with Beijing widens. Lockdowns have become more frequent and China’s borders remain mostly shut, hurting domestic gasoline and aviation fuel sales.