At least three Chinese state oil refineries and a privately run mega refiner are considering increasing runs by up to 10% in October from September, eyeing stronger demand and a possible surge in fourth-quarter fuel exports, people with knowledge of the matter said.
Chinese refiners are expecting Beijing to release up to 15 million tonnes worth of oil products export quotas for the rest of the year to support the No. 2 economy's sagging exports. Such a move would signal a reversal in China's oil products export policy, add to global supplies and depress fuel prices.
After a recent slide in benchmark Brent crude prices to below $100 a barrel, Chinese refiners have taken arbitrage opportunities to boost stockpiles, traders said, booking supertankers to haul crude oil to China from the Americas and Middle East.
An official with a state refinery said his plant is eyeing a 10% hike in runs from September to about 240,000 bbl/d. "We're raising runs next month in preparation for a possible opening in exports, though nobody has a clear idea how big the opening would be," the official said.
A second official with another state refinery said his plant is also planning about an 8% hike in throughput next month, but added that the plan had been driven by firmer domestic margins. A third state refinery expects to restart a 60,000-bbl/d crude unit next month after maintenance, one of the sources said.
China's single largest refinery Zhejiang Petrochemical Corp, which is capable of processing 800,000 bbl/d of crude, is aiming to ramp up runs in the coming months from the current levels of 700,000 bbl/d-750,000 bbl/d, according to two sources familiar with its operations.
A ZPC representative confirmed the firm is considering a run increase due to signs of economic recovery, but declined to elaborate further.
Average refining rates at China's state-owned refineries had climbed to 73.74% as of last week, up 2.56% from end-August, according to Chinese brokerage SHZQ Futures.
Run rates at independent refineries in Shandong, whose combined refining capacity accounts for a fifth of China's total, also rebounded last week after falling for five weeks since mid-July.
The rebound in China's crude demand has boosted the lumpsum freight rates for Very Large Crude Carriers (VLCC) sailing from the U.S. Gulf and the Middle East to China to their highest since May 2020 at about $10 million, according to data from Simpson Spence Young on Refinitiv Eikon.
"I believe that China-bound freight rates strengthen on the hope of a China demand recovery... the rumor of an extra large amount of product exports in Q4 also fueled market optimism," said Emma Li, an analyst from Vortexa Analytics.
U.S. crude arriving in China in October is expected to hit the highest since December 2020 at 450,000 bbl/d, up from about 300,000 bbl/d in the August-September period, said Vitkor Katona, lead crude analyst from analytics firm Kpler.
Middle East crude shipments to China are also rising, with September loadings set to reach 4.7 MMbbl/d, 4% higher than in August and 8% higher than July, Kpler data showed.
Onshore crude inventories in China fell to about 986 MMbbl in mid-September, down 6% from a peak of 1,049 MMbbl at end-June, according to data analytics consultancy Kayrros.
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