China helped keep a lid on global oil prices this year when it cut crude imports.
In theory, it also has the power to cool high diesel prices and potentially even avert the need for a messy U.S. diesel export ban. But the odds that China will bail out the fuel market today look lower than they were back in 2022-the last time it stepped in to cool sky-high diesel prices.
China has an enormous refining network and is currently the only country with significant excess capacity. While U.S. refineries are running hot at around 97% utilization, Chinese refineries are only at 75% of their max output, data from Vortexa shows.
At last week's summit in Washington, President Trump asked Chinese leader Xi Jinping to boost exports of refined oil products. Five weeks out from the midterm elections, Trump is under pressure to lower U.S. diesel prices, which have hit all-time highs in recent weeks.
His other idea-to ban American diesel exports-is deeply unpopular with U.S. oil industry executives, who stand to lose billions of dollars of business if domestic refineries are cut off from the international diesel market.
U.S. diesel exports generated $25 billion in revenue in the 90-day period between June 13 and Sept. 11, according to S&P Global Energy estimates. Oil bosses don't want that cash gusher cut off. Pulling American diesel from the global market would also be a disaster for customers in Latin America and Europe who are reliant on U.S. supplies.
And a ban could have unintended consequences on American consumers. Being cut off from export markets would leave U.S. refiners with a huge diesel glut. This would likely cause a collapse in refinery margins and lead to a 12% cut to refinery runs, according to S&P Global Energy analysis. As this would tighten supply of other transport fuels, such as gasoline, drivers would end up paying more at the pump.
China's diesel exports have been ramping up lately. Beijing banned exports of refined fuels early in the war but told refiners they could resume shipping again in July, once it was clear there was no domestic fuel shortage.
Data from Vortexa shows that China's diesel exports in September reached around 500,000 barrels a day, up from 166,000 barrels a day on average from April through July.
There is a big financial incentive to send more overseas. Chinese diesel export margins, a measure of the profit refiners make from selling abroad, reached $100.58 a barrel in September, according to Tom Reed, head of oil market analysis at Argus Media. This is up from $21.40 in January.
But oil analysts don't expect an export boom like the one seen in late 2022, which is the last time China bailed out an overheated global diesel market.
Back then, diesel prices rose in the months after Russia's invasion of Ukraine. In September that year, Beijing issued extra export quotas to refineries. By November, China was exporting around 680,000 barrels of diesel a day, which helped to cool global prices.
Today, Beijing's priority is to make sure it has enough fuel supply at home rather than maximising profits for refineries. The global supply of crude oil for refinery feedstock is more volatile now than it was four years ago.
Issuing extra export quotas at this stage could send Chinese buyers back into the crude market and push up oil prices, although freight costs are now a big consideration for buyers. A shortage of oil tankers is raising the all-in expense of shipping oil from the Middle East to China.
However, Chinese refineries have used less of their existing export quotas than normal for this time of year, as they were banned from exporting fuel in the early days of the war. This means that even without a shift in policy they could export roughly an extra 100,000 barrels of diesel a day in the fourth quarter based on Vortexa estimates.
According to the International Energy Agency, global exports of diesel in August reached 4.6 million barrels a day, down from 5.1 million barrels a day the same month last year. Any extra diesel supply from China would help. But it probably wouldn't be enough to remove the threat of a U.S. export ban.
China already helped stave off an even worse oil-price shock this year. Don't bet on it fixing the diesel crunch too.
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