China Directs Refiners to Maintain High Fuel Output on Mideast Supply Fears

China has directed some of its largest oil refiners to maintain high fuel production levels, a move aimed at ensuring domestic energy security as geopolitical tensions in the Middle East threaten critical crude supply routes, according to a Bloomberg News report published Saturday.

The Directive

Citing people familiar with the matter, the report stated that at least two major refineries have been asked to sustain or even increase their processing rates. This instruction comes despite elevated domestic inventories of gasoline and diesel and a structural slowdown in China's fuel demand.

The policy appears to be a precautionary measure as Beijing braces for potential disruptions. China had initially curbed fuel exports when the conflict began to ensure domestic availability, though authorities later eased these restrictions by issuing additional export quotas earlier this month.

Market Implications

The directive to keep refinery runs high is expected to exert further pressure on already weak Asian refining margins. Increased output from China, the world's largest crude importer, could add to a regional fuel surplus, impacting profitability for producers across Asia.

Ad

According to the Bloomberg report, the spread between regional gasoline prices and Dubai crude has already fallen to its lowest point since late March. The report also noted that Beijing will not revise its July export quotas, signaling a firm focus on domestic supply over selling surplus fuel abroad.

Context and Energy Security

This policy highlights Beijing's heightened concerns over the Strait of Hormuz, a vital chokepoint through which approximately one-fifth of global oil consumption passes. Renewed hostilities in the Persian Gulf, coupled with a recent U.S. decision to revoke a waiver for Iranian crude sales, have intensified fears of potential interruptions to global energy flows.

As the world's top crude importer, China is highly sensitive to geopolitical risks that could affect its energy supply chains. The latest measures suggest Beijing is preparing for the possibility of a prolonged period of instability in the key energy-producing region.