China cuts gasoline exports

China will cut gasoline exports to their lowest in 11 months in August and increase diesel imports to the highest since April, as big refiners fill a local supply gap left by smaller independents that have cut runs. The world's second-biggest energy user is shipping 2,10,000 tonnes of motor fuel this month, down from 3,00,000 tonnes in July, and will buy 30,000 tonnes of low-sulphur diesel, according to a survey of trade sources.

Although those deals will likely increase estimates of implied demand in China, analysts say they are more the result of Beijing's pressure on state oil giants to meet domestic demand, despite low state-set prices that mean selling at a loss.

"The government has told the big oil companies to cut back on gasoline exports," said David Hurd, oil analyst from Deutsche Bank in Beijing. Supplies of both gasoline and gas oil are tight in south China, traders say, with the country's smaller 'teapot' refineries cutting runs to very low levels or shutting down.

Fuel oil imports last month fell to an estimated 2.2-2.3 million tonnes, their lowest in four months.

With Beijing frowning on exports, refiners seeking to avoid losses are keeping production rates low.

"While mandated by Beijing to ensure sufficient domestic oil supply, the refiners themselves are bleeding from volatile, high oil prices. What can they do to lessen the pain? Maintenance then," said a former Sinopec official, who insisted on anonymity. China's top dozen refiners, located in the flourishing east and south, will keep August run rates steady at 2.47 million bpd, down nearly 4% from a record high in June. Sinopec's second-largest Maoming plant has yet to bring back a 50,000-bpd crude unit following maintenance since mid-July, and it will close a 1,60,000-bpd crude unit at its Gaoqiao refinery for three months from late August.

Strains in the domestic supply chain have sparked rumours of a possible fuel price increase by the National Development and Reform Commission, but analysts saw that as unlikely for now.

"Supply is tight, driven more by mispricing in the system as mandated by NDRC and Beijing won't raise pump prices yet because inflation is on the rise," Hurd added.

Official Chinese annual consumer price inflation hit a 33-month high of 4.4% in June, and economists expect a 4.9% rise in July.

While gasoline demand gallops ahead thanks to summer holidays and car sales, which rose by a third in June, demand for diesel is being aided by quickening construction in the run-up to the 2008 Olympics and the end of the seasonal fishing ban.

Hotter than usual summer weather has also lifted demand for diesel, used to fuel small-scale power generators. Temperatures in eight of 10 major cities were above their long-term averages in July, and set to remain so in August.