Chinese state refiners may cut diesel exports to keep a bigger portion of their production for domestic markets in early 2023 as a new mandate from Beijing could disrupt local supplies, several industry sources said.

A rule announced last week by China’s Ministry of Emergency Management introduces a new requirement, starting on Jan. 1, for all fuel retailers to apply for a dangerous goods licence when transporting diesel.

This could increase transportation costs, trigger consolidation among private retailers that struggle to obtain the new licence and disrupt domestic distribution, traders said.

“The entire supply chain will be affected and distributors who are only dealing with diesel, and no other dangerous goods, will need to scramble and apply for such a permit now,” a Chinese state refining source said.

A second state refining official from another company said the extra costs could push up domestic retail prices, giving state refiners more incentive to sell fuel locally rather than export.

The sources declined to be named as they were not authorised to speak with the media.

China, the world’s number-two refiner, has ramped up diesel exports since September, easing tightness in global supplies ahead of European Union sanctions on seaborne Russian oil products to take effect on Feb. 5. A drop in China’s export volumes could again tighten the market.

Despite China issuing a big batch of new export quotas, energy security is still key and covering domestic demand is state refiners’ priority, senior Kpler oil analyst Jane Xie said.
Source: Reuters (Reporting by Trixie Yap; Editing by Florence Tan and Bradley Perrett)