China could rescue the oil market again — if it wanted to

{"text":[[{"start":3.8,"text":"There’s one good reason oil prices have never roared quite as loudly as they could have during the Strait of Hormuz crisis: China. The People’s Republic slashed its imports of crude oil and drew from its huge stockpiles. Now, though, it’s diesel that’s in short supply, sending shockwaves through the economies of the US and Europe. Could China ride to the rescue again?"}],[{"start":null,"text":"

"}],[{"start":24.44,"text":"In theory, yes it could. The reason diesel is in short supply globally is because facilities that are available to refine crude oil into the preferred fuel for trucks, buses and trains are already running at full tilt. Many Russian refineries, formerly outsized producers of diesel, have been taken offline owing to attacks by Ukraine."}],[{"start":44.8,"text":"China, though, has ample spare capacity. Even before the US began its war with Iran, China had more refineries than it needed to supply its own domestic needs of oil-derived products. Its cuts to crude imports and product exports have left many plants half idle; in aggregate the 13mn barrels a day they are producing is 2.3mn barrels fewer than last February, WoodMackenzie estimates."}],[{"start":null,"text":""}],[{"start":67,"text":"There’s an obvious economic opportunity for refiners here. Prices for refined products, particularly diesel, have risen sharply since the start of the year, far outpacing the price of crude oil. Based on the current price spread between crude oil and products in Asia, adding back that 2.3mn barrels a day would create around $70mn a day in gross refining margins for Chinese refiners, roughly $25bn a year on an annualised basis."}],[{"start":94.04,"text":"The problem is that Chinese refiners aren’t free to follow profit to the extent their US and European counterparts are. The country’s imports and exports have indeed been creeping up, but the government’s strategic priority seems to be rebuilding its depleted buffers."}],[{"start":108,"text":"And since Beijing has a significant say in refiners’ activities, it is likely to eschew any moves that would push up the price of crude oil further. That would include sucking a few million barrels a day out of the global market to produce profitable diesel. China imports 8.4mn barrels a day, based on July’s figures, so a $10-per-barrel increase would wipe out the commercial gains from putting spare refining capacity to work."}],[{"start":131.8,"text":"It would therefore be foolhardy to expect a deus ex Sina when it comes to the strained diesel market. That said, investors who have driven up the price of refiners like Neste Oil and Repsol some 60 per cent this year shouldn’t forget that incentives can change, and that China’s idle capacity is a choice, not a necessity. Should oil flows through the strait pick up, or should China deem the market stable enough to tolerate some extra demand, it might not take long for diesel prices to come down with a bump."}],[{"start":167.96,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787649660_9262.mp3"}