China refined oil prices are expected to regain momentum in the rest of 2023 on anticipated production cuts among refineries, trailing the weakness in October.
Sinopec recently released the indicative wholesale prices of #92 gasoline and 0# gasoil at Yuan 8,000/tonne and Yuan 7,500/t respectively for early November, a drop of Yuan 500/t and Yuan 150/t from late October, per OilChem tracking.
Source: Mysteel OilChem
Looking back on Q3, gasoline prices were supported by the travel peak in summer and the eight-day National Day holiday, before embarking on the downtrend for lack of growth engine in the fourth quarter.
Gasoil prices showed a similar pattern, but the momentum was enabled by the stockpiling of traders. Specifically, the traders purchased extensively in July when gasoil prices bottomed by end-June, against the traditional stockpiling period in August.
Entering Q4, gasoil prices were supported by low inventory held by the traders and modest demand, though international crude oil prices fell. As such, the gasoil price drop was less significant than gasoline.
In addition, Sinopec's latest indicative price for gasoil was slightly higher than the market expectations, offering certain confidence.
Looking ahead, domestic refineries have started to lower their capacity utilization rates due to oversupply and lack of raw materials, triggered by the fourth batch of crude oil import quotas far less than expected.
Source: Mysteel OilChem
Furthermore, the narrowing refining profits, which fell 118.15% from a week ago at Yuan -12.85/t on average among state-owned refineries in the week ended October 26, also weighed on the production.
However, the sagging demand is likely to offset the effect of production cuts.
Source: Mysteel OilChem
For gasoline, rapidly rising penetration rate of new energy vehicles, which recorded 29.8% in September, would reduce the consumption of gasoline. It is expected that gasoline consumption may peak in advance by end-2023 or early 2024.
Gasoil demand is also challenged by the popularity of new energy heavy trucks, whose sales volume jumped 30% year on year over January-September 2023 at 20,127 units.
In summary, China's refined oil prices are unlikely to fall significantly further in the rest of 2023 in light of gradually shrinking supply. In addition, when the traders' inventory was extremely low, the follow-up stockpiling by traders may serve as another bull factor to refined oil prices.
Therefore, there is high possibility that refined oil prices will rebound in Q4, though the prices may drop to some extent in the near term.
Written by Aggie Hu, huchenying@mysteel.com
Edited by Navy Liu, liuchuanjun@mysteel.com