China’s Export Quotas
June 7, 2024
Last month, China issued 18 million MT (136.7 million barrels) of export quotas in the second batch, comprising 14 million mt for gasoline, gasoil, jet fuel and 4 million mt for fuel oil. With the new allocation, the total export quotas for clean products amounted to 33 million mt in the first two rounds, up 18% from the corresponding rounds in 2023.
We expect China to continue releasing export quotas for the rest of the year, reaching approximately 47 million MT for 2024. This is supported by the healthy margins due to the cheap unconventional feedstocks but slower domestic end-user demand, pushing more diesel to the European market and gasoline to Africa (to face pressure as WAFR’s deficit eases due to Dangote). According to Kpler, the diesel deficit in Europe is expected to further deepen by nearly 400,000 b/d in the Sep-Nov period, suggesting a growing import during this period. Considering the long sailing distance from the Far East to Europe and West Africa, LR2 tankers will benefit the most from the increased East-to-West volume. Meanwhile, there’s no VLCC and only six Suezmaxes to be delivered in the next seven months, which will force charterers to take LR2s instead of these newbuilding tonnages to carry long-haul CPP cargoes for their maiden voyages. The healthy LR2 demand, supported by both increased volume and longer sailing distances should the Red Sea Chokepoint remains, will provide support on LR2 earnings, incentivizing further increases of dirty-trading LR2s to rejoin the clean trading fleet.
Figure 1: China’s Oil Product Export Quotas Figure 2: China Diesel Surplus vs Europe Diesel Deficit
Source: McQuilling Services, Kpler
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