China export quota talk drives Asia gasoil prices to one-month low
Quantum Commodity Intelligence - Diesel prices and refining margins collapsed to one-month lows on Wednesday, with swaps markets sold off hard during Asian trading hours as the market priced in expectations of a fresh batch of export quotas from China.
The flat price was down $11.69/b at $129.56/b, with the spot crack to Brent falling $9.54/b to a one-month low of $36.99/b and the diesel east-west EFS down $11.08/mt to a four-month low of -$58.73/mt.
The move followed market talk of China potentially issuing fresh export quota allocations for refined products soon, with trade sources suggesting as much as 1.5 million mt of diesel supply could be allocated.
While unconfirmed, the move was a welcome relief for importers, with diesel 10ppm cracks for Asian cargoes having been elevated since Russia's invasion of Ukraine as European customers scramble to cover lost supply and ease dependence on Russian exports.
Quantum data shows Asian cargoes hitting a record high of +$73.37/b hit in June, while a less pronounced spike has driven the market in recent weeks as a high of +$56.48/b was reached at the end of August.
Quota
China had once been a major regional supplier of middle distillates via its massive refining industry, although Beijing moved to clamp down on independent refiners during the Covid-19 pandemic as it sought to limit excess capacity and prioritise domestic price stability over export receipts.
Its export quota policy was beefed up this year, with allocations significantly below those seen in 2021.
China issued around 22.5 million mt of export quotas for refined product cargoes in July, with the 10.4 million mt allocated at the time down more than 50% from the same point last year.
Residual fuels remain the exception to this scheme, with a significant uptick seen in quota allocations for fuel oil as the country tries to develop the port of Zhoushan into a globally competitive hub for vessel refuelling.
Separately, Beijing issued another 2.75 million mt of export quota allocations on Wednesday, leaving bonded fuel oil quotas some 32% higher year-on-year at 15 million mt.