Workers are seen near pumpjacks at a CNPC oil field in Bayingol.
SINGAPORE Reuters -- China's refined fuel exports are likely to sink to the lowest level in seven years in 2022, as the country seeks to maintain domestic supplies while the refinery output suffers from a rare decline.
China has cut its export cuts which allow them to step up to fill shortages in Europe and elsewhere after the Ukraine crisis has strained global fuel markets, which are the most likely beneficiaries of regional rivals like India and South Korea.
Beijing manages domestic supply and demand balances by issuing several batches of allocations over a year and issuing several batches of allocations to global markets.
Most of the quotas go to state oil companies, including China National Petroleum Corp, China Petrochemical Corp, China National Offshore Oil Corp, Sinochem Holdings and China National Aviation Fuel Company. The only private company with export allowances is the mega refiner Zhejiang Petrochemical Corp.
The government specified quotas by product through 2019 but allowed exporters to decide what they want to export from a general allocation.
Exports of very low sulphur fuel oil, a marine fuel that meets International Maritime Organization standards, are managed under a separate quota system. Bunker fuel volumes from bonded zones, which are considered as exports, have been rising since 2020 as China works to build its eastern port of Zhoushan into a regional shipping fuel hub that rivals Singapore.
In the year 2019, China's exports of diesel, gasoline and jet fuel peaked at 55.4 million tons, with diesel accounting for nearly 40% of the total, according to Chinese customs data.
Exports fell from 2020, as the COVID 19 epidemic hit global fuel demand.
Beijing has reverted to its fuel export policy from late 2021, reducing its quota volumes by 40% in 2022.
The sharp reduction in exports was caused by Beijing's concern over a domestic supply crunch similar to that for thermal coal which resulted in widespread power cuts.
The government wants to reduce pollution and carbon emissions by removing small, inefficient refining capacities, and that has fed into China's lower throughput this year.
China's July refinery runs fell to their lowest level in more than two years, with year-to-date volumes down 6.3% from a year ago, according to data released on Monday.
China has issued 22.5 million tons of quotas for the three main fuel products for this year, which is 40% less than the corresponding period of 2021.
Only the second and third batches of quotas came in June and July after refiners lobbied Beijing to help brimming domestic stocks amid COVID 19 disruption to fuel consumption.
In the second quarter, China missed out on a bumper export market when Asian refining margins for diesel and gasoline hit record highs around $72 and $38 a barrel.
Domestic demand for diesel is expected to rebound in September and October, as China's harvest gets started and construction activities pick up, while a tax probe into independent refiners is expected to limit production of exportable fuel supplies during the rest of 2022.