August 21 news
According to the commodity market analysis system, the price trend of gasoline and diesel from Shandong local refineries rose this week. By the end of the week, the price of China's 92# gasoline was 8965.71 CNY/ton, with a weekly increase of 4.17%; the price of China's 0# diesel was 7854 CNY/ton, with a weekly increase of 5.03%.
Core Driver: A Sharp Rise in International Crude Oil Prices
This week, international crude oil prices have risen significantly. As of the 21st, WTI crude oil has risen to $86.83 per barrel, while Brent crude oil has reached $93.78 per barrel. The root cause of the sharp rise in oil prices is the rapid escalation of geopolitical tensions in the Middle East. On August 17th, the 60-day conflict memorandum of understanding between the U.S. and Iran officially expired, but neither side intends to renew it. Negotiations broke down completely due to disagreements over control of the Strait of Hormuz, dashing previous market expectations for a de-escalation. Shipping safety is threatened, and fears of supply disruptions are spreading, causing a significant increase in crude oil market prices. Influenced by the support of crude oil, the prices of gasoline and diesel produced by Chinese independent refineries have also risen sharply.
Supply Side: Tight Supply, Low Inventory
In the early stage, the National Development and Reform Commission of China allowed some private refineries to reduce their production from June, indicating that the policy level's tolerance for the continuous losses of local refineries had reached its limit. As a result, the operating rate of Shandong's local refineries continued to decline to below 50%. While the operating rate of local refineries decreased, the operating rate of major refineries did not change significantly. Additionally, the finished oil inventories of China's major units and local refineries generally remained at low levels, making the supply-side pressure manageable and providing a basis for price increases. At the same time, the resource situation of major units has not been effectively alleviated, and some regions have even experienced tight resource conditions, leading to an upward trend in the prices of China's finished oil products.
Demand Side: China’s gasoline and diesel demand has shown some improvement.
In terms of gasoline, the use of private cars and car air conditioning has increased during the summer vacation, providing 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 have also suppressed the frequency of car usage for some owners, but the increase in travel during the holiday period has ensured some demand for gasoline, leading to an upward trend in gasoline prices. For diesel, as the recent hot and rainy weather gradually subsides, and with some maritime areas opening up, the start-up rates for engineering, infrastructure, and outdoor mining operations have slightly increased, along with an increase in fuel consumption for fishing. This has led to an increase in the demand for diesel, resulting in a rise in the diesel market.
Market Outlook: Currently, the U.S. and Iran have starkly divergent demands, making it highly challenging to reach a comprehensive agreement. Geopolitical tensions in the Middle East are likely to ease only temporarily rather than marking the end of the crisis. We expect the market to enter a phase of high volatility and fluctuation, where unidirectional trends will be hard to sustain. In the short term, oil prices are likely to continue rising sharply. The strong support at higher crude oil price levels is putting upward pressure on China’s gasoline and diesel prices. Additionally, demand for refined petroleum products has slightly increased compared to earlier periods. As a result, gasoline and diesel prices are expected to keep climbing in the near future. However, given that prices are already at elevated levels, any further price increases may be somewhat constrained.
