China suspends all diesel exports

Beijing/London: Beijing has suspended exports of diesel fuel indefinitely to help meet domestic energy demand ahead of the peak summer season, prompting concerns about knock-on effects across Asia.

The move, designed to keep energy prices low at home, echoes export bans implemented by many governments on agricultural commodities in 2007-08, which sparked large increases in food prices.

Last week, Russia imposed a prohibitive tax on petrol exports, suggesting emerging countries are broadening the use of export restrictions beyond agriculture.

Social stability

The National Development and Reform Commission, China's state planning agency, ordered state oil companies to stop exporting diesel to "maintain social stability and promote economic development". The ban does not affect shipments to Hong Kong and Macao.

Last month, state-owned Sinopec, China's biggest refiner, halted exports of refined oil products. The move came days after a strike by truck drivers unhappy at surging fuel prices affected ports in Shanghai.

China's ban on diesel exports could prompt importers across the region to hoard energy commodities. "When you get export bans ... you get a stockpiling reaction among importers," said Amrita Sen, oil analyst at Barclays Capital in London.

China is the biggest consumer of energy and relies on imports for about half its crude oil supply. Primary destinations for its diesel are Vietnam, Hong Kong and Singapore, the region's main energy trading hub.

Beijing is trying to avoid the problems it faced during past oil price spikes, when state energy groups reduced the supply of refined products at home and increased exports in order to avoid heavy losses in China's tightly regulated market.

State-set petrol and diesel prices are at record highs but refiners are still losing money because crude prices have risen much faster over the past year.

Beijing and analysts are forecasting severe electricity shortages in some areas this summer because of limited coal supplies and reduced hydroelectric power because of droughts in central and eastern China.

China exported about 100,000 barrels a day of diesel over the past year but became a net importer in late 2010 as power shortages forced enterprises to rely on portable generators.

Boost expected demand

The International Energy Agency estimates the diesel shortage could prompt China to turn to imports again, boosting expected global demand growth of 1.3 million barrels a day by an additional 200,000 bpd to 300,000 bpd.

"We can see a significant demand increase in China if small businesses and homes need to crank up their power generators," said David Fyfe, head of oil markets at the IEA.

China's decision to ban diesel exports comes as supplies from Japan have dried up due to tsunami damage to refineries.

— Financial Times