Singapore cracks set to ease as Beijing approves 500 Kt of road fuels exports in May

Singapore CPP cracks are set to ease as Beijing approves 500 Kt of May road fuels product exports through G2G channels, with a separate 1.8 Mt jet program – primarily for international flights and Hong Kong – loading alongside. The bearish move is capped, however, by the G2G-only restriction and the prospect of more than 600 kbd of regional demand destruction this month.

• Beijing has approved 500 Kt of May clean product exports through G2G channels: Sinopec 280 Kt, CNPC 150 Kt, CNOOC 40 Kt, Norinco 20 Kt, Sinochem 10 Kt.
• Slightly bearish for Singapore mogas and gasoil cracks: Demand destruction may be a mitigating factor.
• A separate 1.8 Mt bonded jet program sits alongside the allocation, primarily comprised of bonded exports for international flights and flows to Hong Kong.
• The export channel remains G2G-only despite punishing domestic margins: May volumes are capped at the 2.25 Mt loading program

The Singapore CPP market is set to ease in the coming weeks, with Beijing approving 500 Kt of May clean product exports through government-to-government channels. These are allocated as follows: Sinopec 280 Kt, CNPC 150 Kt, CNOOC 40 Kt, Norinco 20 Kt, and Sinochem 10 Kt. There is no official product breakdown, but the volume tracks closely with the 450 Kt of gasoline and gasoil already flagged in next month's loading program, as per preliminary media reports. Jet/kero is excluded from this allocation and runs through a separate channel, with 1.8 Mt scheduled to load across the month. Given the upcoming weeklong holidays in the country, many of these cargoes should be loaded in the second half of May. We expect product cracks across the board to ease in response.

China-Singapore oil products arbitrage incentive ($/bbl)

Source: Argus

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The approvals close out the question raised by last week's permit applications. Indeed, Sinopec and CNPC had been lobbying the government for more leeway, citing plentiful domestic stockpiles. Critically, the channel remains tightly controlled, and exports stay ostensibly banned outside diplomatic, government-to-government deals. There is no parallel commercial export window opening, despite a $30-70/bbl arb to a still-heated Singapore spot market that continues to face the prospect of demand destruction this month exceeding 600 kbd.

Chinese refiner run rate (%)

Source: Mysteel OilChem

The move also helps the government – who have recently tried to get independent refiners to raise run rates – give the industry an incentive to maintain runs in an environment where domestic demand remains underwhelming and price-controlled, while feedstock costs have sky-rocketed since the start of the war. This has led to negative margins, with OilChem reporting industry averages as low as minus 3,091 CNY/t (minus $429/t) for state-owned refiners, and minus 263 CNY/t (minus $37/t) for teapots. Refiners are effectively bleeding cash on every barrel processed, with the absence of a free export channel turning every refining run into a guaranteed loss. To compound these woes, both gasoline and gasoil stocks have sharply surged in some parts of the country, with some teapots in Shandong unable to justify their current runs due to ullage constraints, as runs have lifted from around 51% in February to 55% this month.

Shandong refinery stocks (% capacity)

Source: Argus

The news will hit a market that has been facing tighter regional supply, with the second-biggest exporter, South Korea, having seen a combination of spring turnarounds and run cuts bring April exports to five-year lows. The G2G restriction is a firm ceiling on how far cracks can slide: without a commercial export window, total May volumes are capped at the 2.25 Mt loading program rather than running higher, and more aggressive selloffs are unlikely unless Beijing changes course.

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