China taps oil reserves, refineries increase production to avoid diesel shortage

China announced that it will use its state fuel reserves, paving the way for refineries to continue to dramatically increase production to avoid a diesel shortage in the world’s second largest oil consumer.

In a rare public statement on Sunday, China said it will release gasoline and diesel reserves to boost market supply and stabilize prices.

The news comes after media reports in recent weeks about tight diesel supplies and queues at gas stations in various provinces.

Chinese refineries cut fuel production in the third quarter due to lockdowns and COVID-19 outbreaks, but diesel consumption rebounded, partly triggered by a widespread energy crisis that took the market by surprise.

China has been a net exporter of diesel and gasoline for years, but Beijing’s latest policies aimed at eliminating excess fuel production, from cutting quotas for crude imports and foreign purchases of refined fuel to a hefty tax on importing a diesel blending component, reducing supplies, especially diesel.

Beijing has taken steps to cool escalating commodity prices this year, freeing up crude oil and base metal reserves to cool the market in a rather unusual strategy.

“Product turnover (oil) should be more frequent than crude oil (emissions from oil reserves)“, said Sengyick Tee, an analyst at Beijing-based consultancy SIA Energy, adding that such moves are rarely confirmed in official statements.

Sunday’s move could represent the first time that Beijing has publicly announced an injection of oil products, he added.

“Words are more important than actions, (China) learned it from OPEC +”He said, referring to comments on the alliance’s supply of the world’s leading oil producers, which may have the effect of lowering market prices.

The State Reserves office said the fuel turnover was annual, but did not reveal the published volume.

“The rotation of gasoline and diesel from storage this time will be used to increase market resources, ease supply tensions and make room for the regulatory role of the refined oil stock market.“, said.

Mia Geng, consultant analyst FGE, said that national oil firms were already increasing operations and increasing the supply of diesel this month.

Sinopec Corp, Asia’s largest oil refinery, has said that its refineries were operating at full capacity, with plans for diesel production to be nearly 50% from January-August levels in November and December.