(The views expressed here are those of the author, a columnist for Reuters.) 

LAUNCESTON, Australia - China may ride to the rescue of tightening diesel markets in Asia by ramping up exports in December to compensate for lower shipments from Indian refiners caught up in sanctions against Russian crude oil.

China's exports of diesel may rise to about 4.5 million barrels in December, according to trading sources, as refiners take advantage of strong margins for producing the transport fuel.

If December-loading cargoes do rise to the expected level, it would be the strongest month since August and a significant jump from the forecast by commodity analysts Kpler for exports of 2.76 million barrels for November.

China boasts the second-largest oil refining capacity in the world but typically uses less than 80% of capacity at major state-owned plants, and even less at smaller, independent processors.

Exports are also controlled by government quotas, which are driven more by ensuring domestic fuel security than by market forces that allow refiners to capture profits when margins are elevated.

However, China's refiners probably still have sufficient quotas available to lift December exports of diesel and fellow middle-distillate jet fuel, as well as gasoline.

In the last round of quotas, China issued permits for 8.395 million metric tons for diesel, jet fuel and gasoline, taking the total for the year to 40.195 million tons, about the same as the 41.0 million tons for 2024.

Refiners exported 29.91 million tons of the three fuels in the first 10 months of the year, according to official data released on November 18.

This means that there are quotas available for about 10.29 million tons of exports of the three fuels for November and December.

November exports of the three are forecast by Kpler to be around 1.58 million tons, and while this figure may rise as more cargoes are assessed by the end of the month, it is also clear that refiners will have more than enough remaining quotas to boost exports in December.

ROBUST FUEL MARGINS

There is a strong profit motivation for them to do so, with the refining margins for diesel and gasoline near two-year highs.

The profit for making a barrel of gasoil, the building block for diesel, in Singapore ended at $24.37 on Monday, down from $25.97 at the prior close, largely as traders priced in the possibility of higher Chinese exports next month.

The margin reached $31.25 a barrel on November 19, the highest since September 23 and up 140% since the low so far in 2025 of $13.05 on March 25.

The profit margin on making a barrel of gasoline was $14.54 on Monday, up from $14.42 previously.

It had reached $17.71 a barrel on November 14, which was the highest since August 29, 2023, and the margin is almost five times the low so far in 2025 of $3.68 on January 21.

Part of the recent strength in refining margins has come amid weaker exports from India, with Kpler data showing shipments of diesel, jet fuel and gasoline from the South Asian nation are expected to drop to 4.34 million tons in November, the lowest since April and down from a high so far in 2025 of 5.54 million tons in September.

Several Indian refiners are having to seek alternative crudes to replace Russian oil, which they had been buying at discounts prior to the latest U.S. sanctions on Russian oil companies.

It is likely that India's refiners will be able to source alternative crude supplies, meaning that the drop in exports of refined products is likely to be temporary.

But while there is a gap in the market, it appears that China is best placed to profit from supplying additional diesel and gasoline.

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The views expressed here are those of the author, a columnist for Reuters.

(Editing by Kate Mayberry)