China has stopped selling fuel abroad for October, as Europe weighs a diesel release

China’s refiners have stopped exporting fuel for October, apart from shipments to Hong Kong and Macau, Reuters reported this week, citing industry sources. Beijing wants its own stocks of diesel and petrol rebuilt first. PetroChina, the largest state refiner, has cancelled most of the petrol and jet fuel cargoes it had planned to ship this month, Reuters added. Some of those deals were only two weeks old.

There has been no public statement from Beijing. Beijing manages fuel exports month by month, and it has not said whether any will be allowed after the National Day holiday ends on 7 October.

A U-turn after the summer

The halt reverses a decision from July. China first restricted fuel exports in March, after the Iran war cut the flow of crude from the Gulf. It relaxed the curbs in July, and its refiners took the chance. In August they shipped 6.01 million tonnes of oil products, 12.7% more than a year earlier, according to Chinese customs data reported by OilPrice.com.

Shipments were already falling in September, Reuters reported: about 1.4 million tonnes of diesel, 500,000 tonnes of petrol and at least 2 million tonnes of jet fuel were loaded for export.

The reason is at home. Chinese stocks of petrol and diesel are at seven-year lows, OilPrice.com reported. Beijing has made exports conditional on stocks returning to their pre-war level. By Kpler’s estimate, cited by Reuters, commercial stocks of diesel and gasoil are about 20 million barrels short of that level, and petrol about 9 million barrels short. With “domestic supply already relatively constrained and internal demand strengthening, refiners are likely to prioritise the domestic market,” said GL Consulting, a Chinese energy consultancy.

Who loses the fuel

The buyers are mostly in Asia. Bangladesh gets about a third of its refined fuel from Chinese suppliers, according to Reuters. It now has to find diesel elsewhere, in a market that was already short.

It matters beyond Asia because diesel is the tightest part of the oil market. The war has cut exports from Gulf refineries, and Ukrainian attacks have hit Russian ones. A barrel of diesel on the US Gulf Coast cost about $204 on 29 September, $90 more than a barrel of Brent crude. In February, before the war, it averaged about $26. September’s average, at about $91, is the widest for any month since the EIA’s series began in 2006, as we wrote on 30 September when the month was not yet over.

There is also a political side. Reuters reported that US officials asked China to help steady global fuel supplies during President Xi Jinping’s recent visit to Washington. The October halt goes the other way.

Europe looks at its own stocks

European governments have discussed a French proposal to release 50 million barrels of diesel from their emergency stocks, alongside 50 million barrels of crude from members of the International Energy Agency, The National reported. Brent fell 2.9% to $99.35 a barrel on Friday as the talks were reported, and US crude fell nearly 4%.

For scale, 50 million barrels of diesel is roughly five months of what China exported in September, by our rough conversion of 1.4 million tonnes into about 10 million barrels. A release would cover China’s absence for a while. It would not fix the shortage of refining capacity behind the high price of diesel.

What to watch

• After 7 October: whether Beijing allows exports for the rest of the month. Reuters said shipments could resume, depending on stocks and refinery output.
• The European proposal: whether governments agree on the diesel release, and how fast it reaches the market.
• The diesel premium: a narrower gap between diesel and crude would be the first sign that supply is catching up.