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China taps oil reserve, refiners ramp up output to stave off diesel shortage

China taps oil reserve, refiners ramp up output to stave off diesel shortage

FILE PHOTO: The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. REUTERS/Angus Mordant

BEIJING/SINGAPORE : International crude benchmarks slipped on Monday but recovered following China's weekend statement that it would tap its state fuel reserve while national refiners ramp up output sharply to avert a diesel shortage in the world's second-largest oil user.

In a rare public statement on Sunday, China said it was releasing gasoline and diesel reserves to boost market supply and stabilise prices.

The news comes after media reports in recent weeks of tight diesel supplies and queues at petrol stations in several provinces.

Chinese refiners cut fuel output in the third quarter because of COVID-19 curbs and floods but diesel consumption rebounded, partly triggered by a widespread power crunch that caught the market by surprise.

China has been a net exporter of diesel and gasoline for years, but Beijing's recent clampdown aimed at removing excess fuel output, from cutting quotas for crude oil imports and refined fuel exports to a hefty import tax on a diesel blending component, tightened supplies of fuel, especially diesel.

Beijing has taken steps to cool a stellar commodity price rally this year, releasing crude oil and base metals to cool prices in a rare move in the last few months.

"(Oil) product rotation should be more common than crude (oil releases from reserves)," said Sengyick Tee, analyst at Beijing-based consultancy SIA Energy, adding that such moves were not typically confirmed in official statements.

Sunday's move could be the first time Beijing has publicly announced a release of oil products, he added.

"Words are bigger than actions, (China) learned it from OPEC+," he said, referring to communications on supply from the alliance of the world's major oil producers that can have the effect of lowering market prices.

Brent crude lost 0.6per cent on Monday before flipping to stand up nearly 50 cents a barrel by 0920GMT, in the wake of the previous day's statement by the National Food and Strategic Reserves Administration.

Market watchers said it was the first time Beijing announced the regular rotation for gasoline and diesel publicly.

The state reserves bureau said the rotation was an annual one, but did not disclose the volume released.

"The rotation of gasoline and diesel from storage this time will be used to increase market resources, ease supply tensions, and give play to the regulatory role of the national refined oil reserve market," it said.


Mia Geng, an analyst with consultants FGE, said national oil firms were already ramping up runs and increasing gasoil supply this month.

Sinopec Corp, Asia's largest oil refiner, has said its refineries were running at full rates, with plans to raise diesel output by nearly half from January-August levels in November and December.

Its diesel output in September and October had already risen 20per cent month on month, the refiner told state television.

"We believe the tight diesel supplies in several regions are temporary and expect the situation to improve soon," Ling Yiqun, a Sinopec vice president, was cited as saying.

The tightness in diesel supply that began to be felt in September has led state-run CNOOC to make rare imports of 50,000 tonnes of diesel for delivery into the southern province of Guangdong, Reuters has reported.

With a planned output hike, Sinopec has no plans to import diesel for now, a trader with direct knowledge of the refiner's fuel trades said.


Second-largest state refiner PetroChina told state television it had boosted its imports of crude oil by 10per cent year-on-year in October and ramped up diesel supply by 23per cent.

"Considering the demand downside from the current COVID-19 resurgence and the upcoming winter, the need for significant stocks release is limited," Geng added.

Several central and southern provinces have seen long lines of trucks queuing at gas stations but were only able to get small portions due to tight diesel supplies and rationing by the fuel stations, local media have said.

Wholesale diesel prices in the manufacturing and exporting hub of Guangzhou city have gained 26per cent since September to hit a three-year high of 8,120 yuan (US$1,268.00) a tonne last Friday, data from China-based consultancy Longzhong showed. [LNZO-DS0-GUML]

Diesel output has been falling each month since June while gasoline has been dropping since July, data from the National Bureau of Statistics showed.

By end-September Chinese commercial inventory for gasoline and diesel plunged 24per cent and 28per cent year-on-year to 15.91 million tonnes and 17.71 million tonnes, respectively, Longzhong data showed.

(US$1=6.4038 Chinese yuan renminbi)

(GRAPHIC: China's gasoline and diesel output -

(Additional reporting by Shivani Singh in Beijing, Florence Tan in Singapore and Beijing newsroom; Editing by Ana Nicolaci da Costa and Clarence Fernandez)

Source: Reuters


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