Drop in oil exports predicted

China will possibly soon see a drop in fuel exports this month as it makes up for domestic shortages, sources reported Friday.

The Petroleum & Chemical Corporation (Sinopec)<600028><386> will likely not export any more gasoline then its agreed-upon amounts from its fixed long-term contracts, while PetroChina<857> will slash its exports in August to 160,000 tonnes of gasoline, the year's lowest figures so far, China News Service reported.

As such, PetroChina's August exports are set to decrease by a third as compared to its July exports, and Sinopec is predicted to largely decrease its exports to the eastern and southern China, leaving only Zhanjiang Dongxing Refinery in Guangdong Province to upkeep its export level for the month, sources report.

The report said that Sinopec will drop oil exports in all regions to the lowest level of 2007, as the refinery only plans to supply to Hong Kong and Macau due to prior contracts. One of Sinopec's refineries, Hainan Refinery, will be suspending its exports in August as other refineries are undergoing cuts as well, due to maintenance.

Hainan refinery and another Sinopec subsidiary, Guangzhou Petrochemical, said they will do their best to ensure that there are enough supplies to the domestic market, Interfax reported.

Reasons for the drop in exports have been attributed to an order from the National Development and Reform Commission (NDRC) to increase crude oil processing, cut maintenance time during the peak consumption season and strictly control oil product exports.

Analysts speculate that China's refineries and gas stations have started hoarding and profiteering as they expect domestic oil product price hikes to come soon, as international crude oil jumps in price.

This will likely contribute to supply shortages in China, and potential social instability, analysts said.

Sinopec is Asia's largest refiner and PetroChina is the other major oil refiner in China.