Chinese Refiners Hit Another Output Record In September

Oil prices are leading a move higher this morning as the fear-of-escalation trade continues to ripple through energy markets, while refined products are mixed with gasoline prices up 2 cents and diesel down 2 in the early going. 

Iran’s foreign minister called for an embargo against Israel, which for some brings back memories of the oil embargo 50 years ago that was one of the biggest disruptions to global supplies in history, while others shrug this off as just more rhetoric that commonly refers to the US and Israel as Satan. 

Of course, what the markets really want to know is what Saud Arabia is going to do. A Reuters article this morning digs into that topic a little closer, and the chart below from that article shows why they’re really the ones that matter. 

Chinese refiners hit another output record in September, wasting no time in putting their new facilities to work and taking advantage of Russia’s supply length, and shortages of Diesel in the Western Hemisphere. A big question mark here is whether China’s refiners continue acting like capitalists to take advantage of this unique margin opportunity, or if perhaps the country decides to wield its own energy weapon in retaliation for US restricting its access to AI chips. The report also highlighted that Golden Week travel in China was up more than 70% from last year, and more importantly, up 4% from pre-COVID levels, which is the biggest signal that the world’s largest oil consumer is returning to normal activity, which could also provide political cover to restrict fuel exports for “domestic demand” needs.   

The price to ship diesel on Colonial’s mainline (Line 2) went positive Tuesday for the first time since January, as the Gulf Coast looks long diesel with ULSD basis values shrinking to a 10-cent discount, while the East Coast remains relatively tight with NYH values holding at a nickel premium to futures. Gasoline (Line 1) values have been holding near a 3-cent premium for the past few days.

The API estimated oil inventories in the US declined by 4.4 million barrels last week after a huge increase the week prior. Refined products also saw draws with gasoline down 1.5 million barrels and diesel down 612,000. The EIA’s weekly report is due out at its normal time this morning.

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