How China Manages Refined Fuel Exports

China uses a quota system to manage gasoline, diesel, and jet fuel exports. Each year it issues the quotas in batches as part of its strategy to manage domestic supply and demand balances.

The recipients of the quotas are mostly state companies; China National Petroleum Corp, China National Offshore Oil Corp, Sinochem Holdings, China Petrochemical Corp, and China National Aviation Fuel Company. The only private company that has received quotas thus far is Zhejiang Petrochemical Corp.

Lowering and Relaxing Quotas to Balance Markets

Exports of diesel, gasoline and jet fuel from China reached a high of 55.4 million tonnes in 2019; according to China, 40 percent of the exports were diesel. China's fuel exports have been on a downtrend since their peak. It started in 2020, during the COVID-19 pandemic. As economies and societies slowed to a halt, global demand for fuel cratered.

But as nations started to get a grip on the virus, supply became an issue as demand took off. To secure its supplies, China began to adjust its fuel export quotas in late 2021. China is also actively shutting down inefficient, small refineries to reduce pollution and carbon emissions.

In 2022, China issued 22.5 million tonnes of quotas, a 40 per cent reduction from the previous year. The quotas were smaller at the beginning of the year, but the Chinese government had to change tact so that fuel companies could take advantage of the surge in oil prices.

The Impact on Global Oil Markets

Global oil prices are currently high. The primary reason is the war in Ukraine, which resulted in Russian oil and gas export bans by western nations. The Chinese government's reduction in oil exports has also contributed to high oil prices.

China's economic growth is slow this year due to COVID-19 protocols. China still adopts a zero-tolerance policy against the virus. It has shut down cities over breakouts. With lower economic activities, refineries have been building up inventory. China has relaxed some aspects of its COVID-19 response. Observers believe it will stimulate growth in the nation. It may also use its inventories to help with export figures.

Sweet Tips from Ally

China’s refined fuel exports have been managed strategically with a focus on maximizing efficiency and profitability. Despite the complexities of the global oil market, China has managed to strike a balance that allows it to remain competitive while controlling the flow of its refined fuels. By closely monitoring demand and limiting refined fuel exports, China has avoided any major disruptions in its domestic oil supply chain.