Who is afraid of some competition?
August 27, 2014, 3:53 PM ET
China is now exporting gasoline.
The world’s most populous nation, with its once-booming economy and voracious appetite for energy, had more refined petroleum products on its hands last month than it needed, so it put them on the global market.
It’s a remarkable turning point, and says several things about China, the second-biggest consumer of oil behind the United States, and the oil market at large.
According to a report Wednesday from Platts, China’s oil demand fell in July to 9.61 million barrels of oil a day, down 2.1% from a year ago and down a whopping 6.2% from June. (Platts calculates implied oil demand by comparing the volume of oil flowing through China’s refineries with net oil product imports.)
At the same time, Platts’ analysis of government data shows China became a net exporter of oil products last month, pushing 450,000 metric tons, or about 5 million gallons a day, of surplus fuel into the export market, most of it heating oil and gasoline.
“The weakness in China’s oil demand reflects the ongoing slowdown in its economy,” James Bourne, Platts associate editorial director for Asia news.
Bourne also points out it’s the third time this year China has flipped to being a net oil product exporter. It also happened in March and May amid soft domestic fuel demand.
If China is selling excess gasoline to the rest of the world, does this help U.S. motorists? Indirectly, yes. While cargoes of gasoline from Chinese refineries are unlikely to make it to the U.S., it nevertheless means there are more supplies flowing into the global fuel market. That puts downward pressure on prices, including prices in the United States.
GasBuddy.com reported Wednesday that prices at the pump this Labor Day weekend, currently averaging $3.42 a gallon nationwide, will be the lowest in four years. The reason? “Cheaper global and domestic crude oil prices have pushed costs for North American refiners lower, despite violence in the Middle East and uncertainty about long-term Russian energy supplies.”
Considering the alarming demand forecasts being made about China just a few years ago, increased domestic refining capacity and weaker energy demand have suddenly left it with a surplus of certain fuels. This marks a major change in marketplace fundamentals.
As recently as 2012, BP’s 2030 Energy Outlook offered this assessment: “More than half of global liquids demand growth is in China, and that country’s refinery expansion plans will affect product balances globally. A continuation of its stated strategy to be self-sufficient in refined products would severely curtail crude run increases for refiners outside of China.”
Apparently, China is closer to hitting those self-sufficiency goals than many expected. And it’s being felt at the pump.
– Jim Jelter