June 26th News
According to the commodity market analysis system, the price trend of gasoline and diesel from Shandong refineries in June showed a decline. By the end of the month, the price of 92# gasoline in China was 7802.57 CNY/ton, a decrease of 4.50% in June; the price of 0# diesel in China was 6643.86 CNY/ton, a decrease of 8.43% in June.
Core Driver: International crude oil prices plummeted in June
In June, international crude oil prices experienced a significant downward trend. The sharp drop in oil prices was not caused by a single factor but rather by the combined impact of several negative developments: the resumption of shipping through the Strait of Hormuz, the return of crude oil supplies from the Middle East, the U.S. dollar index reaching a 13-month high, weak global demand for crude oil, and downward revisions to oil price forecasts by leading investment banks. The risk premium previously embedded in oil prices due to geopolitical tensions has largely been fully absorbed by the market. Coupled with generally weak fundamentals in the global crude oil supply and demand balance, the crude oil market has plunged sharply. As a result of this substantial decline in crude oil prices, the pricing trends for gasoline and diesel at China's independent refineries have also weakened.
Supply Side and Policy: A Shift from "Mandatory Supply Assurance" to "Permitting Production Cuts"
There has been a significant shift in policy. Previously, under the pressure of ensuring supply, refineries were required to maintain high production loads, and there were even warnings that unauthorized reductions in production would result in cuts to future crude oil import quotas. However, in June, the National Development and Reform Commission allowed some private refineries to reduce their output starting from June, indicating that the policy level's tolerance for the continuous losses of refineries has reached its limit. As a result, the operating rates of Shandong's independent refineries have continuously declined to below 50%. While the operating rates of independent refineries have decreased, the operating rates of state-owned refineries have slightly increased, with these changes offsetting each other, limiting fluctuations in refined oil supply. The market trend in June has shown a decline.
Demand Side: Diesel Enters Traditional Low Season, Gasoline Lacks Stronger-than-Expected Support in China
In terms of gasoline, although there is some support, it is not enough to offset the overall weakness. In the later period, with the increase in private car travel and the use of car air conditioning during the summer vacation, there will be some support for gasoline consumption. However, the continuous rise in the penetration rate of new energy vehicles constitutes a structural suppression, posing a significant impact on the traditional gasoline market. High oil prices themselves also suppress the frequency of vehicle use by some car owners, lacking effective support for gasoline demand, and the market transactions remain sluggish. For diesel, June is traditionally a low season for consumption. The high temperatures of summer lead to a slight decrease in the operation rates of construction, infrastructure, and outdoor mining, weakening the essential consumption of diesel. As the summer harvest enters its final stage, the demand for agricultural fuel decreases. The hot and rainy weather in South China further suppresses downstream fuel demand; both gasoline and diesel show a downward trend.
Market Outlook: Currently, the geopolitical risk premium has largely been priced out, and the strong U.S. dollar trend remains unturned. Moreover, crude oil supply from the Middle East will continue to be released, meaning international crude oil prices are likely to remain in a weak, volatile range with limited room for short-term rebounds. As China enters July, the market is expected to continue exhibiting a relatively weak, oscillating pattern: although there is an expectation of a slight decline in operating rates at independent refineries, the supply side could further contract, providing some support to prices and helping to establish a floor. However, the impact of high oil prices, alternative energy sources, and rainy weather persists, potentially keeping gasoline and diesel consumption sluggish. Given that gasoline and diesel prices remain at low levels, price fluctuations are likely to dominate in the coming period.
