China Slashes Q3 Product Export Quotas

Beijing has cut the pace at which it is allowing Chinese refiners to ship out oil products this year by 40 percent in its third quarter review of annual export volumes, industry sources familiar with the matter said on Tuesday.

Sinopec Corp, CNOOC Ltd and China National Petroleum Corp were given an additional oil product export quota of 3.4 million tonnes for the year, down from the 5.6 million tonnes awarded in the second quarter and 9.75 million tonnes in the first quarter, the source said.

Most of the reduction is being applied to gasoline and jet fuel, which is reflective of near double digit growth in domestic demand for gasoline buoyed by higher retail sales of SUVs and double-digit growth for jet fuel use as the country is on the brink of becoming one of the world's biggest aviation markets.

China will slow the pace of gasoline exports by 75 percent and jet fuel by 93 percent, the sources said, while diesel exports will be allowed to more than double from the additional volumes issued in the second quarter.

Diesel demand has largely been flat due to a slowdown in Chinese investment growth which impacts diesel use in trucks, machinery and heavy equipment.

China controls annual oil product exports through quotas issued to state-run refiners after quarterly reviews of domestic supply and demand balances. Refiners can usually apply for more allowances once any initial quotas are used up.

China's diesel exports are expected to increase in the third quarter from the previous three-month period, although they will remain about the same as a year ago on continued weak domestic demand, industry sources said.

"I don't think exports will go up by a lot even though they are given the quota as some of it is going into storage ... (Also) demand is weak in many places," a Singapore-based trader said.

Chinese refiners are expecting a smaller 3.4 percent rise in crude runs this year and a slowdown in capacity additions compared with last year's levels due to worries about sluggish fuel demand growth, a Reuters' survey showed.

The outlook for China's oil demand growth has been dented by a slowdown in its economic expansion to 7.4 percent in 2014, the weakest in 24 years.

By Seng Li Peng and Jessica Jaganathan