China’s total refined product exports recovered from April’s three-month low, up by 15.1% m-o-m and 5.5% y-o-y to 4.03 mmt in May. This was largely due to lower refinery maintenance at state-owned refiners (which are the only refiners allowed to export) as well as the release of a fresh batch of fuel export quotas under the general trade category. The growth in Chinese product exports lent support to Medium Range (MR) tanker rates in Asia which saw a rebound. Rates for the South Korea-Singapore route basis 40 kt were up by 20% m-o-m to $290,000 on 25 May.

We expect China’s product exports to continue expanding in June on the back of the conclusion of refinery maintenance season, lower domestic demand for gasoil due to a nationwide fishing ban as well as the recent release of another batch of oil export quotas. A recent influx of June-loading cargoes has led to a surge in MR rates, with rates for the South Korea-Singapore route basis 40 kt hitting $320,000 as of today. This week China allocated the third batch of fuel export quotas accounting for 9.06 mmt under the processing trade terms, which is 172% higher than the previous batch. After including general trade quotas (6.3 mmt), the total stands at 15.4 mmt which is 231.2% higher than the previous batch of quotas. This leaves much room for exports to grow in Q3, which could help to keep a floor under MR rates.

Source: OFE Insights