A combination of low inventories and refinery maintenance could be spurring some Chinese state-owned companies to seek gasoil imports for the fourth quarter, sources said this week.
Though market sources said that state-owned trader Sinochem had bought 35,000 mt of gasoil for delivery over October-November. No official confirmation could be got from Sinochem.
Other Singapore-based sources said, however, that Sinochem and China National Offshore Oil Corp. had both bought several medium-range tankers of 10 ppm sulfur gasoil that loaded in Japan last month.
Chinese traders attributed the imports to better margins, rather than an uptick in domestic gasoil demand.
"Demand is actually still very weak and we haven't seen any improvement," a source with Chinaoil, the trading arm of China National Petroleum Corp., said earlier this week.
FAVORABLE IMPORT MARGINS
"The imports are probably because economics are good now," the Chinaoil source added.
The domestic retail price of National Phase 3, or 350 ppm, gasoil, is around Yuan 7,000/mt ($1,145/mt) or $153.70/barrel, which is at least Yuan 500/mt higher than the cost of imported gasoil.
The average price of 10 ppm sulfur gasoil loading from Singapore in October was $101.54/barrel, according to Platts data. Prices of internationally traded gasoil have fallen faster than Chinese domestic prices, leading to a significant price disparity, making imports attractive. The FOB Singapore 500 ppm sulfur gasoil was assessed at $95.87/b on Wednesday, 9.5% lower from October 3 when the benchmark was assessed at $105.95/b.
Apart from the sharp plunge in global crude oil prices, the Asian gasoil market has also been reeling from an oversupply due to a closed arbitrage to Europe, weaker demand amid a slowing economy as well as new refineries and upgrades coming on stream in Asia and the Middle East.
Vessels have been used as floating storage by several gasoil traders as landed storage filled up fast. The FOB Singapore 500 ppm sulfur gasoil crack against front-month cash Dubai crude averaged $14.42/b in Q3, compared with $17.39/b in Q3, 2013.
CNOOC likely bought some gasoil last month as the price of imported cargoes was much lower than the domestic price, a company source said.
The imports came in the wake of the shutting of its 12 million mt/year Huizhou refinery in southern Guangdong province since mid-October for scheduled maintenance, the source added.
DECLINING GASOIL STOCKS
Sources at refineries owned by PetroChina -- CNPC's listed arm -- said the company's gasoil stocks have been relatively low in recent months. This prompted it to raise the price of gasoil sold to its retail marketing outlets by Yuan 370/mt in early October from a month earlier to Yuan 7,445/mt -- the first increase in PetroChina's wholesale gasoil prices this year.
China's commercial gasoil stocks have been steadily declining since early this year, according to China Petroleum Stockpile Statistics.
Gasoil inventories fell to a 10-month low of 7.17 million mt at the end of September, according to Platts' estimates based off the CPSS data. In comparison, gasoil stocks had hit a high of 11.14 million mt at the end of February.
SINOPEC, CNPC REMAIN ON SIDELINES
To build stocks, PetroChina's refineries likely adjusted their yields to boost gasoil output in October, according to a source from the company's Guangxi Petrochemical refinery.
In the past, Chinese refiners typically built up stockpiles of oil products in the fourth quarter to prepare for the Lunar New Year holiday in January or February.
The Chinaoil source, however, said the company was not interested in importing any gasoil currently as PetroChina has ample domestic supply.
Unipec, the trading arm of the China Petroleum and Chemical Corp. or Sinopec, has not imported any gasoil in recent months either, a source familiar with the matter said.
China has been a net exporter of gasoil since the latter half of 2012 because domestic demand has been weak.
Gasoil inflows were just 10,000 mt in September, following zero imports in July and August. So far this year, China's total gasoil imports have slumped 15.4% year on year to 220,000 mt in the first nine months of the year.
AWAITING NEW EXPORT QUOTAS
Meanwhile, some refinery and market sources said the government had approved a new batch of oil product export quotas, although none had seen the actual volumes, which are allocated by the Ministry of Commerce.
"We have been given the go-ahead for exports in the fourth quarter," the source at Guangxi said.
The last round of quotas -- the third this year -- given out to the three major state-owned companies around the end of August totaled just over 5 million mt, with gasoil comprising 820,000 mt -- 450,000 mt to Sinopec, 330,000 mt to CNPC and 40,000 mt to CNOOC.
Sinopec is still utilizing the existing quotas for its gasoil exports, one of the sources said.
The Chinaoil source noted that export margins remained weak, so new quotas, or the lack thereof, was not an issue of concern at the moment. "We don't expect to sell much more gasoil. It's not a matter of quotas but whether it makes sense," he added.
China's gasoil exports in the third quarter more than doubled year on year to 980,000 mt, while over January-September they totaled 3.27 million mt, up 62.7% from a year earlier.
