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Analysis: As crude weakens, China's gasoil stockpiling takes a backseat

Increase font size  Decrease font size Date:2016-11-10   Views:752
The unforeseen rush to build gasoil stocks that China witnessed recently is starting to ease as traders have applied brakes to their buying spree amid expectations that a weakening crude oil market could push down product prices further and help them get even more competitively priced cargoes.

While gasoil demand from end-users remain healthy in the domestic market, a slowdown in appetite for stockbuilding had improved the local supply situation, helping to pull down the wholesale National 5 zero-pour gasoil price to Yuan 5,900/mt ($117/b) on Friday in East China's Zhejiang province, from the year's high of Yuan 6,020/mt hit on October 28, according to information provider Sublime China Information.

Prices were as low as Yuan 4,750/ mt on September 2, Sublime China Information said.

Crude oil markets paused for breath on Friday, after a five-day sell-off that has seen both crude benchmarks falling by more than 10% from October highs of around $54/b for front-month ICE Brent and $52/b for NYMEX crude.

"Buying for stockpiling in China has slowed since late October and we don't expect an upward trend in the next few weeks," said a Shandong-based trader.

A Shenzhen-based trader said: "As crude price are falling, we would prefer to wait and buy at lower prices."

Although the retail guidance price has not been cut by the government yet, it is expected to fall in about two weeks, to be in line with falling crude oil prices, the Shandong trader said.

The last time Beijing adjusted oil product priced was on October 19, lifting the retail ceiling for gasoil by Yuan 340/mt to Yuan 6,770/mt for Zhejiang province.

In addition, there was no urgency to buy now as most trading houses had already bought a lot of cargoes last month, while there was enough stocks with end-users, said a PetroChina trader based in Guangzhou. ROBUST END-USER DEMAND

The strong end-user buying since September was largely driven by relatively lower crude prices and recovering demand from land and water transportation sectors.

A ban on overloading trucks, which took effect September 21, had significantly raised the mileage needed to transport cargoes, thereby increasing gasoil consumption by the commercial transport sector.

Moreover, activity in the coal market also increased since last month, requiring more trucks and vessels to ship cargoes from mines to users.

In addition, seasonal fishing bans in the China seas were gradually being lifted from August, boosting the fishing industry's demand for marine gasoil.

"The market is not that tight now. There has been sufficient supplies from state-owned refineries. The price increases were mainly because marketing companies preferred to build stocks by buying from independent refineries or blenders at lower prices instead of us," said a source with Sinopec's Guangzhou refinery, adding that their stock levels were adequate.

Ex-refinery prices from state-owned refiners are set by their head offices. They are usually higher than the price at which independent refiners sell their products.

To address the domestic shortfall, a few state-owned refineries had decided to "delay" their planned exports to keep the gasoil barrels at home for domestic sales. But, with stockpiling activity suddenly weakening, some of them finally decided to export as originally planned.

A Dalian refinery exported around 60,000-70,000 mt of gasoil in October, slightly down from the original planned volume of 80,000 mt.

China produced 14.38 million mt of gasoil in September, edging down 0.3% from August and 1.4% lower year on year, latest data from the National Bureau of Statistics showed.

"Supplies from refineries are adequate for the rest of the year as there are fewer state-owned and independent refineries under maintenance compared to the third-quarter," said a market observer.

In addition, there was more gasoil imports being sold in the domestic market recently, which is rare, traders said.

China imports gasoil occasionally, but almost all the imports are normally kept in bonded storage instead of being sold in the domestic market, they added.

Sinochem imported an MR-sized gasoil cargo for the domestic market, which was fixed for delivery this week, sources said.

Also, ample imports of light cycle oil in September, a blending material for off-spec gasoil, added to local supplies.

Imports hit an all-time high of around 500,000 mt in September, more than tripling from the levels in the year-ago period, General Administration of Customs data showed.
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