July 24th, news:
According to the commodity market analysis system, the prices of gasoline and diesel from Shandong independent refineries showed an upward trend this week. By the end of the week, the price of 92# gasoline in China was 8,495.43 CNY per ton, with a weekly increase of 6.79%; the price of 0# diesel in China was 7,464.43 CNY per ton, with a weekly increase of 10.84%.
Core Driver: A Sharp Rise in International Crude Oil Prices
This week, international crude oil prices have surged significantly. The core reason behind the sharp rise in oil prices is the growing likelihood of a prolonged blockade of the Strait of Hormuz and the direct attack on the Bab al-Mandeb Strait in the Red Sea—two critical oil export routes from the Middle East are now under simultaneous pressure, heightening the risk of supply disruptions and driving up risk premiums. Moreover, although OPEC+ plans to increase production, implementation has proven challenging. Meanwhile, the EU’s sanctions against Russia have been further tightened, effectively raising overall crude oil trading costs and providing indirect support for oil prices. Influenced by the substantial rise in crude oil prices, gasoline and diesel prices at China’s independent refineries have also surged sharply.
Supply Side and Policy: A Shift from "Mandatory Supply Assurance" to "Allowing Production Cuts"
Policy has taken a significant turn. Previously, under the pressure to ensure supply, independent refineries were required to maintain high production levels, and even warned 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 independent refineries had reached its limit. As a result, the operating rate of Shandong's independent refineries continued to decline, falling below 50%. While the operating rates of independent refineries decreased, the operating rates of state-owned refineries slightly increased, offsetting each other and limiting the fluctuation in the supply of refined oil products. The strong cost support pushed up the prices of refined oil products.
Demand Side: China’s gasoline and diesel demand has not improved.
In terms of gasoline, although there is some support, it is not enough to offset the overall weakness. The increase in private car travel and the use of car air conditioning during the summer vacation have provided some support for gasoline consumption. However, the continuous rise in the penetration rate of new energy vehicles has created a structural suppression, significantly impacting the traditional gasoline market. High oil prices themselves also suppress the frequency of vehicle use by some car owners, leading to a lack of effective support on the demand side, with the market remaining sluggish. For diesel, it is currently in the traditional off-season for consumption. The high temperatures of summer have led to a slight decrease in the operation rates of engineering, construction, and outdoor mining, resulting in weak essential diesel consumption. Additionally, the demand for agricultural fuel has contracted; the hot and rainy weather in South China has further suppressed downstream fuel demand. Overall, the demand for both gasoline and diesel has not improved.
Market Outlook: Currently, low inventory levels are setting the stage for persistently high oil prices. The U.S. Strategic Petroleum Reserve has already fallen to its lowest level since 1983, and overall crude oil inventories have hit multi-decade lows. Coupled with the significant challenges OPEC+ faces in increasing production, the supply side is unlikely to ease its tight situation in the short term. Moreover, geopolitical factors are amplifying the volatility of crude oil prices; with insufficient inventory reserves, it’s difficult to deploy large-scale hedging measures against the risk of geopolitical supply disruptions. Once shipping lanes experience a substantial closure, the only option left will be to rely on price hikes to curb consumption and balance supply and demand. As a result, oil prices are likely to continue surging in the near term. Although high crude oil prices are forcefully supporting China’s gasoline and diesel prices, the impact of high oil prices, alternative energy sources, and rainy weather conditions is set to persist, potentially keeping gasoline and diesel consumption sluggish. Given that gasoline and diesel prices remain at relatively low levels, future price increases are likely to be constrained.
