Traders’ Diesel Inventories Saw Small Rises in Mid-October

Up to October 18, 2017, diesel inventories at traders took a proportion of 22.03% of their storage capacity, up by 0.38% month on month, according to SCI study on the 30 traders in the coastal regions or along Yangtze River.

Players mostly anticipated that the refined oil price adjustment will be held up on October 19, as the moving average rates of the Brent, Dubai and Cinta crude oil remained low. However, the strong demand for diesel around China’s National Day holiday as well as the tight supply in some regions stimulated the replenishment by some players. That’s why the diesel inventories at traders slightly increased in mid-October compared with that in late September.

The volatile crude oil price failed to provide notable support to the diesel price. However, China’s 0# diesel supply slightly tightened in H1 October due to the average diesel quality upgrading and more production of diesel with condensation point below 0oC. As a result, diesel prices at both state-owned refineries (SOR) and independent refineries kept increasing in October. An increase of RMB 600/mt was seen at some state-owned refineries within half a month. Additionally, diesel prices at most SOR have exceeded those of gasoline.

The 0# diesel price averaged RMB 5,890/mt at Shandong independent refineries as of October 18, 2017, up by RMB 110/mt from late September. That at SOR averaged RMB 6,422/mt, up by RMB 307/mt from late September. The price spread between wholesale and retail sharply narrowed in recent days because of the constant rises in diesel. Filling stations reduced the discounts to deal with lower profits in diesel retail. Yet the overall retail profits were still satisfactory as China’s gasoline prices held stable.

The international crude oil price will probably remain volatile in H2 October. As seen from the moving average rates of the Brent, Dubai and Cinta crude oil, the retail ceiling price of refined oil is likely to be raised in the next 10 working days’ period. The tight supply of diesel will continue in the short run, lending support to China’s diesel price. SCI estimates that diesel inventories at traders will probably keep growing in late October, as some players may replenish their inventories in line with the anticipation of price rises.