China’s Sinopec Corp has applied to the government to swap some of its marine fuel export quotas for allowances to export light products such as diesel, jet fuel or petrol, four China-based industry sources said this week.

Asia’s largest refiner has asked to swap a quota to export 800,000 metric tons of low-sulphur fuel oil, part of the 3 million tons of marine fuel quota recently issued by Beijing, for a similar amount of allowances for light product exports, the sources said.

Approval could come by the end of October, one of the sources said.

The unusual move could weigh on regional margins for oil products, which are already under pressure, by adding more supply to Asia. Gasoil refining margins have dropped by 12 per cent since the start of October to US$28.82 a barrel, while jet fuel margins have slipped 9.6 per cent to US$26.12.

For Chinese refiners, however, the higher overseas prices mean that they can sell their exports for more than in the domestic market. Exported diesel, for example, sells for at least US$10 a barrel more than the domestic price, according to traders.

Sinopec declined to comment on their request for the quota swap.

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Exports of diesel and aviation fuel are currently more attractive than marine fuel for state-run Sinopec as China’s ship refuelling hub of Zhoushan is amply supplied with higher production from rival PetroChina as well as bumper imports, two Beijing-based sources told Reuters.

“Given the saturated Zhoushan market, there is little point chasing the market share there,” said one of them.

China restricts fuel exports via a quota system, allowing mostly state refiners in the business, under a broad policy to curb excessive refinery processing and carbon emissions. Overall exports of light products have trended lower since a 2019 peak.

With the latest quota issue in September, China has allotted 39.99 million tons of light product exports for 2023, 7 per cent higher than in 2022, limiting room for more to be released before year-end, sources said.

China’s commerce ministry did not immediately respond to a request for comment on Sinopec’s request or the quota outlook.

China has nearly tripled diesel exports during the first eight months of 2023 to 9.7 million tons, according to customs data.

The addition of more international flights from China until the year-end will boost aviation fuel exports, traders said.

China’s international airline seat numbers for October is 57 per cent of where it was in 2019, up by 4 percentage points from September, according to aviation analytics firm OAG.

It also remains profitable to send aviation fuel to the US west coast, two trading sources said. China exported 15,800 barrels per day to the region in September, Kpler shiptracking data showed. REUTERS