With more fuel cargoes coming into the regional market, China’s move to near-normal levels of fuel exports is putting pressure on refining margins in Asia. The transfer comes after Beijing decided to lift export restrictions in March that had prevented more refiners from shipping overseas for more than three months.
According to Bloomberg, citing people familiar with the matter, Chinese authorities have granted additional export permits this month, with at least three refiners authorized to ship fuel overseas.
China’s exports of gasoline, diesel and jet fuel are expected to total about 3 million metric tons in July, including bonded cargoes destined for Hong Kong and Macau, broadly in line with the country’s average monthly exports last year.
The rise in exports is helping to turn the corner on the less favorable conditions in the region that strengthened refining margins in Singapore, South Korea and India during the restrictions. Refiners throughout Asia are hitting fresh headwinds from increased competition from Chinese imports.
Zhejiang Petrochemical Returns to Export Markets
Among the refiners resuming overseas shipments is Zhejiang Petrochemical Co., which received approval to export fuel in July after being excluded from international sales for more than three months, according to S&P Global. During the suspension, fuel exports, including gasoline, diesel and jet fuel, were largely limited to China’s state-owned refiners.
China imposed the export restrictions in early March to safeguard domestic fuel supplies following concerns over potential disruptions to Persian Gulf crude shipments during the Israel-Iran conflict. By late April, market conditions had stabilized sufficiently for state-owned refiners to begin applying for export permits, with authorities now expanding approvals to additional refiners.
Trade sources cited by S&P Global said diesel exports could increase to between 600,000 and 700,000 metric tons in July from roughly 200,000 metric tons previously, while jet fuel exports may rise to around 1.9 million metric tons from 1.5 million metric tons. Export margins for Chinese refiners remained above 1,000 yuan per metric ton this week, according to two trade sources.
Refining Margins Come Under Pressure
The return of Chinese fuel exports is already weighing on regional refining economics.
According to Tank Transport, the spread between Asian gasoline prices and Dubai crude, a widely watched measure of refining profitability, has fallen to near its lowest level since late March as Chinese refiners seek additional tanker capacity.
Asia’s gasoline crack spread, another key measure of refinery profitability that reflects the difference between refined fuel prices and crude oil costs, fell to $9.23 per barrel over Brent crude on July 8 from $10.46 a day earlier, according to market data cited by iTiger. Expectations of higher fuel supplies from China and India contributed to the decline.
Weak Domestic Demand Encourages More Exports
China’s weakening domestic demand for transport fuels is providing refiners with an incentive to export surplus production.
LSEG Research said domestic consumption continues to decline as electric vehicles replace gasoline-powered passenger cars. The trend is particularly evident during summer, when warmer temperatures improve electric vehicle battery performance and driving range.
S&P Global reported that gasoline exports are expected to grow faster than diesel shipments later this year as electric vehicle adoption continues to erode domestic gasoline demand. The structural shift is expected to leave Chinese refiners with additional exportable volumes, keeping pressure on competing suppliers across Asia.
South Korea and India Face Stronger Competition
The resumption of Chinese exports comes as South Korean refiners have increased refinery runs to pre-conflict levels to capitalize on stronger export margins, according to market reports. However, the additional Chinese supply is expected to intensify competition across regional fuel markets.
Higher Chinese exports have also contributed to rising distillate inventories in Singapore, with stockpiles climbing to a nine-week high, reducing support for regional fuel prices.
China ranks among Asia’s three largest fuel exporters alongside South Korea and Singapore. Periods of tighter Chinese export quotas have historically benefited competing refiners by reducing regional supply, while larger export volumes typically compress refining margins across the market.
August Outlook Remains Uncertain
It remains uncertain whether China maintains higher export volumes beyond July. Beijing has been continuing to play a quota game to ensure a balance of supply and demand for refined fuel, and has responded rapidly to fluctuations in inventories in the past, Reuters reported.
The state-owned refiner’s inventories of gasoline and diesel are the highest since 2025 and 2024, respectively, according to Chinese energy consultancy OilChem.
A high level of stocks minimizes the need for more stringent export controls this year, but the rate at which quotas are allocated in the second half of 2026 will dictate the extent to which the domestic refiners in the area are under pressure.
