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China’s Oil Product Exports Plunge As Quotas Are Slashed

Chinese exports of gasoline and diesel plunged in July compared to June, after China slashed the quotas of authorized exports of refined petroleum products, according to data from the General Administration of Customs quoted by Reuters on Wednesday.

Chinese exports of gasoline, diesel, and jet fuel are expected to drop off significantly for the rest of the year because of the slashed quotas, analysts say.

In July, China’s diesel exports slumped by 41 percent, and gasoline exports plummeted by 49 percent as refiners ran out of export quotas allocated in the first batch for 2021.

In the second batch for this year, however, Chinese authorities last week slashed the quotas by 73 percent compared to the previous year’s second batch quota.

Due to the significant reduction in the second-batch quotas, China’s exports of gasoline, gasoil, and kerosene are set to drop by at least 19 percent in 2021, Yu Yunfeng and Anita Yang at Independent Commodity Intelligence Services (ICIS) wrote in an analysis last week.

“[T]he domestic distillates oversupply may ease due to a shortage of crude import quotas in the private independent refinery sector following the recent crackdown on crude import quotas trading, and a tightened blended gasoline and gasoil supply in China,” they wrote.

In recent months, China has been increasing the oversight on the refining industry to crack down on the illicit fuel trade, close loopholes that some companies have been using to avoid paying fuel consumption taxes, and curb the fuel oversupply, part of which is the result of tax avoidance or tax evasion.

Earlier this year, the Chinese authorities said they would impose a consumption tax on imported light cycle oil (LCO), mixed aromatics, and diluted bitumen as of June 12.

China is thus seeking to close a tax loophole that refiners have so far used to import cheap blending fuels for making gasoline and other fuels. The taxes are part of the efforts to ease the domestic fuel glut and reduce pollution by heavily taxing the imports of several kinds of blending fuels, which are being used by refiners to produce lower-quality fuels.  

By Charles Kennedy for Oilprice.com

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