China is expected to restart refined fuel exports in October after a temporary pause during the Golden Week holiday, according to Reuters. The resumption comes as global markets for diesel, petrol and jet fuel remain tight, with flows from China seen as adding supply to international trade routes.
Two industry sources said authorities have approved about 3.7 million metric tonnes of combined diesel, petrol and jet fuel exports for October. That follows expectations that Chinese refiners would ship slightly more than 4 million metric tonnes of the same fuels in September, Reuters reported earlier.
Impact On Global Refined Product Markets
As China resumes its refined fuel exports following the Golden Week holidays, we expect immediate pressure on global diesel and gasoline crack spreads. Although the approved October allocation of 3.7 million metric tons is slightly lower than September’s 4 million tons, this incoming supply will help cap the recent rally in refined product prices. We advise derivative traders to look for shorting opportunities in near-term gasoline and heating oil futures as Asian supply begins to flow westward.
Refining Margins Volatility And Trading Strategies
Historically, surges in Chinese fuel exports, such as the massive 50% year-on-year jump in diesel exports during similar late-year pushes, have quickly cooled overheated Asian refining margins. Current market data indicates Singapore gasoil crack spreads are trading in a volatile range of $14 to $17 per barrel, making them highly sensitive to these incoming shipments. We recommend using options to hedge against sudden downside volatility in distillate contracts over the next fortnight.
Additionally, we see a strong case for trading the spread by going long on crude oil while shorting refined product futures, anticipating that crack spreads will compress further. This strategy leverages the fact that global refinery maintenance is peaking, which naturally curbs crude demand while finished products are bolstered by China’s resumed flow. Traders should closely monitor weekly inventory releases from key hubs in Singapore and the US to validate this downward trend in fuel prices.
