China Unlikely To Maintain Record Oil Product Exports

China exported a record volume of refined oil products in December, but the oil price rally has been driving refining margins down in recent weeks. These falling margins mean January's oil product exports may be lower as its production falls, Reuters columnist Clyde Russell writes.

China's commodity trade data for December showed that the country exported 6.17 million tons of refined oil products, equal to about 1.6 million bpd using the BP conversion factor of 8 barrels of product/ton.

Chinese fuel exports in December increased by 6.6 percent compared to November.

The record December fuel exports-including gasoline, diesel, and jet fuel-were the result of near-record imports of crude oil in November and strong refining margins, according to Russell.

In November, China had imported crude oil at a rate of 9.01 million bpd-the second-highest on record.

But since then, the oil price rally has weakened refining margins, and with the inverse relationship between oil prices and refining margins, refiners' production could drop.

In China's case, it will be crucial to see if independent refiners-the so-called teapots-can compete with the bigger state-held refiners for more efficient crude oil processing, in order to stay competitive amid the decline in refining margins.

At the end of 2017, China announced the first batch of crude oil import quotas to independent refiners for 2018, with allocations close to the refiners' annual ceilings, to allow them to better plan their crude purchases for the year.

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"The high allocation in the first round will enable refineries to plan their imports more efficiently in 2018, instead of worrying about the quota shortage all the time," an independent refinery source told S&P Global Platts at the end of December.

After an 8-percent monthly increase in teapots' crude oil imports in December, imports in January are also expected to increase month-on-month, due to the high allocations in the first batch, Platts' Daisy Xu wrote in an analysis last week. The January imports may not rise much, however, due to weakened refining margins and the deep backwardation of the market structure that makes taking delivery earlier than needed uneconomical for refiners.

By Tsvetana Paraskova for Oilprice.com

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