It finally happened in October

China has cancelled part of the gasoline and diesel shipments it had scheduled for October in order to reserve fuel for its domestic market. If the cutback continues, supply in Asia will tighten and prices could rise.

## China keeps fuel for its own market

China has cancelled part of the gasoline and diesel shipments it had planned for October. It is doing so to keep more fuel within its borders, at a time when global energy supply is running short. The decision comes with crude oil prices high and the country's domestic reserves considerably depleted.

According to sources in the trading and shipping sectors, several cargoes scheduled for the tenth month of the year have been cancelled. The exact reason is not known for certain. Some shipments could still go out later, once the Chinese holiday period is over.

## Sinopec and Sinochem, at the centre of the chain

China is not Asia's largest fuel exporter. But it carries weight when the market is tight. Large state-owned companies such as **Sinopec** and **Sinochem** sell gasoline and diesel to international oil companies and trading houses, which in turn distribute it across other Asian countries. Several economies in the region depend on that flow.

The market already reacted on Wednesday: prices for immediate gasoline and diesel delivery rose compared with those for delivery next month. That move suggests traders are anticipating tighter supply. When the product is scarce, the short-term benchmark stretches above the later one, and that is exactly what peine.

## Russia and the Middle East, two open fronts

The Chinese cutback adds to an already difficult picture. **Russia** has extended its diesel export ban until the end of October. Supplies from the Middle East have not fully recovered either. Against that backdrop, Beijing wants to make sure it does not run short of fuel at home.

Diesel is key for transport, industry and heating. Earlier this year, the Chinese government already temporarily suspended gasoline and diesel exports to protect its domestic market. To that is added the sharp drop in supply from **Iran** and the rising cost of crude.

## Winter tightens diesel demand

The calendar does not help. With winter arriving in the northern hemisphere, demand for heating diesel usually rises. For now, diesel supply in Asia is less strained than in Europe and other regions. That could change if China keeps its exports at low levels for a long time.

A prolonged drop in Chinese shipments would leave less product available in Asia. The risk of gasoline and diesel becoming more expensive would grow. In a market so sensitive to imbalances, every barrel that does not leave counts. Winter can squeeze demand just as supply is running tightest.

Fuel prices depend on multiple factors and any forecast may change.