The Return of China…or maybe not yet

• Reports indicate China has granted refiners approval to export 2.7 mt of clean products to destinations excluding Hong Kong and Macau in August, compared to 2.5 mt in July, with option to roll over some of the allowances to September.
• According to the reports, refiners can only export any inventory from fresh runs rather than drawing down from existing inventories.
• It is therefore important to differentiate quotas vs actual export quantities.
• Pre-crisis, looking at the export data trends, it looked like mogas export volumes were more stable and range-bound than jet and diesel exports. This suggests that mogas is the main fuel that China needs to keep as security for domestic plans, and middle distillates are the resultant barrels.
• China has shown they are very geopolitically and economically sensitive, emerging as the dominant buyer during the fifth ADNOC tender for July and August loaders when the ceasefire was in place, and getting very good discounts for those crudes.
• They also benefited from additional crude escaping the Strait of Hormuz in June that would have arrived in 2H July into China, allowing more refined products in the supply chain than earlier committed.
• However, when the US-Iran tensions flared up again in early July, China was not awarded any cargoes in the sixth ADNOC tender and in fact were reselling some of the Upper Zakum crude they bought for a good profit. They picked up some cargoes in the seventh ADNOC tender for Aug/Sep/Oct loaders.
• Saudi allocations for August loaders were around 10 mb which is likely the lowest since the start of the crisis. We will need to see the Saudi term allocations for September loaders to see if they are going to sustain a higher crude purchasing signal in order to export more products. Currently, the China-bound VLCCs have been able to sail through Bab el-Mandeb despite Houthi threats which lowers the risks somewhat for an even lower crude intake for Aug.
• We have not seen a pick-up in WAF crude buying activity from China, but hearing more Russian crude is headed there via the Arctic route and more ESPO purchases from Sinopec.
• Thus my view is that the actual refined product exports for July and August is more a result of that incremental runs from the Strait of Hormuz. The risk of getting lower runs due to crude arrival uncertainties may result in a lower actual export quantity than the approved quotas for August.

About the Author
 June Goh | Senior Oil Analyst, Sparta Commodities
June is a senior oil market analyst at Sparta specialising in global crude trade flows and refining economics across Asia and Europe. Her analysis is regularly cited by Bloomberg, the Financial Times, and Reuters. With a significant following in the energy community on X (@JuneGoh_Sparta), June’s insights are a staple for institutional traders navigating regional market shifts.
Connect: LinkedIn / X

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