China's top refiners have bought about 320,000 tonnes of diesel to cover domestic shortages of the power-generating fuel, traders said on Friday, rare purchases by the world's second largest economy that will squeeze an already tight market.
Chinese demand would likely buoy refinery margins for producing diesel into the early months of 2012, industry sources and analysts said. "The market is very tight right now," a trading source based in Singapore said. "There is no oil left in North Asia for spot buying and everyone's competing for barrels. We are very short of barrels right now."
Traders and industry sources said Unipec, the trading arm of China's top refiner Sinopec Corp , and the second-largest refiner PetroChina had bought a combined 240,000 tonnes for November delivery and 80,000 tonnes for December delivery.
Unipec's purchases were the first in over a year and the two companies bought almost half their tonnage from South Korea's Hyundai Oilbank and S-Oil, industry sources with knowledge of the deals said. The supply squeeze in China is expected to ease in December as Sinopec and PetroChina bring on line new crude refining units and as plants return from maintenance, traders said.
China had been expected to import diesel to alleviate a power shortfall through boosting electricity output at power plants and private diesel generators in factories. Both of China's top state-owned oil companies have been ordered by local authorities to increase diesel distribution to areas urgently in need of the product.
Sinopec has curbed diesel exports for most of the year, but had not been in the international market for imports. Diesel is part of a group of products known as middle distillates. The flow into China was expected to bolster the refining margin in Asia for producing middle distillates from crude - known as the gasoil crack - which is already at a three-month high of $19.44 a barrel above Dubai crude. Supplies in the Asian gasoil market are short due to Royal Dutch Shell 's 500,000-bpd refinery in Singapore operating at half its capacity after a fire in September.
Onshore diesel and jet stocks in the fuel trading hub fell about 4.5 percent to a nearly seven-month low of 10.577 million barrels as of November 2, data from the International Enterprise showed. Sources at South Korean refiners said their cargoes for November are mostly sold at premiums of over $2 a barrel to the country's benchmark price, more than double the almost $1 a barrel levels sold late last year. Cash premiums for the benchmark 0.5 percent sulphur gasoil in Singapore, against which almost all other grades of diesel are priced, has reached the highest level since July 2008 at over $1.10 a barrel, Reuters data showed.
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