Chinese refiners hold October fuel exports, and Singapore diesel jumps then fades

Chinese refiners have suspended oil-product exports for October beyond Hong Kong and Macau, traders said, and the pause is already showing up in Asian diesel even as crude has been moving the other way.

Four people briefed on the matter told Reuters that Beijing had not given major refiners a green light to export fuel to other markets in October. The halt landed as China began a week-long holiday on Thursday. PetroChina cancelled a handful of gasoline and jet-fuel cargoes it had planned for October, three of the sources said, including shipments it had committed in the previous two weeks. Zhejiang Petrochemical, the large private refiner, scheduled no product shipments during the holiday week. Whether permits resume after the holiday ends on 7 October was not clear. The sources said it could depend on domestic stocks and refinery output.

The New York Times, reporting from Beijing and Hong Kong, said state-owned companies had started slowing exports of diesel, jet fuel and gasoline, while shipments to close partners such as Cambodia were continuing. New commercial permits to wider markets had stopped. Keith Bradsher and Alexandra Stevenson put the market reaction in a split: diesel prices in Singapore rose 5 percent on Wednesday and Thursday even as crude fell almost 10 percent. On Friday diesel gave back those gains, returning to about 170 dollars a barrel, after European countries discussed releasing diesel from strategic reserves.

A forecast from an analyst the Times identified as Mr Reed put October exports of refined products at 480,000 barrels a day, down from an earlier forecast of 750,000. After refiners use leftover September quotas, shipments could fall to 300,000 barrels a day in November unless Beijing changes course. Kpler's Zameer Yusof, a senior manager for clean products, said commercial gasoil and diesel stocks sat about 20 million barrels below the pre-war threshold Beijing is using, and gasoline about 9 million barrels short. "A pause on those products was likely," he said.

Beijing has made exports contingent on local stocks returning to pre-war levels, trade sources told Reuters. That is a rule with a number attached, not a slogan. Twenty million barrels of diesel and gasoil, and 9 million of gasoline, is the gap Yusof named. Until that gap closes, the permit window stays shut, on this account. A holiday that runs to 7 October gives the customs and planning offices a week in which no new answer is required.

The crude-versus-diesel split is the trading fact. Crude fell because the barrel itself was less bid. Diesel rose because the product, the thing trucks and generators burn, was being held back by the largest refining system in the world. A 5 percent move in Singapore diesel over two days, against a 10 percent drop in crude, is a crack spread widening in public. Friday's reversal, back to about 170 dollars after talk of European reserve releases, shows how fast that product premium can be talked back down if governments put barrels on the table.

PetroChina's cancelled cargoes are the firm-level version of the same decision. A cargo committed two weeks ago and pulled on Wednesday is a refiner obeying a signal, not a refiner that failed to find a buyer. Zhejiang's choice to skip the holiday week removes another private stream. Hong Kong and Macau are the exceptions Reuters named. Cambodia is the exception the Times named. Everyone else waits.

The pause sits on top of a crude market already tight from the US naval buildup in the Gulf. West Texas Intermediate was at 92.46 dollars on Friday morning in Asia, Brent above 102. A Chinese product halt does not add a barrel of crude. It subtracts a barrel of diesel from the seaborne pool. For a buyer in Asia who needs the product, the relevant price this week was the Singapore diesel quote, not the Brent quote that the headlines were following.

The date to watch is 7 October, when the holiday ends. If permits reopen, October exports can still approach the 480,000 barrel figure. If they stay shut, November at 300,000 is the number Reed offered. The stock gap he and Yusof are measuring, 20 million barrels of diesel and gasoil below the pre-war line, is the condition Beijing has tied to that choice.