Could Spare Chinese Refinery Capacity Be Used to Process More Crude into Oil Products for Export? RBN Energy Thinks It Is Plausible

     With Trump considering a diesel export ban, his advisors, including current DOE Secretary Chris Wright and his former first-term DOE chief Dan Brouliette, have argued against it. Wright said there will be some restrictions but not a ban on exports. Commentators have suggested that the effects of an export ban were uncertain and could actually lead to higher prices rather than the lower prices desired. With diesel selling for $6.53 per gallon, there is a clear need for lower prices. Those levels are not sustainable for farmers, truckers, and others who use diesel extensively. There are no real alternatives for them.

     Jason Lindquist and John Auers of RBN Energy asked whether spare Chinese refinery capacity could help world markets. They conclude that China could buy and refine more oil into products like diesel and export more for the global market. However, they note that China needs diesel too and conjecture that there are some Communist Party policies that may make it harder to refine and export more.

     The graph below shows that diesel and other oil products are not getting through the Strait of Hormuz. It has been a trickle, 100M Bbl /day at the trough in April to about 700 M Bbl/day now,  compared to 2025 when well over 3 MM Bbl/day were moving through the strait. That is about 15-22% of pre-war volumes.

     Persian Gulf refineries produce a lot of oil products, and several of those refineries have been bombed, dropping output by an estimated 2.5 MMb/d, two-thirds caused by refinery bombing. Less delivery of crude oil to refineries in Asia from the Middle East and Russia added to that, amounting to a 5.1 MMb/d cut in global refinery output. That means, even if they could send more, it won’t really happen until the refineries are back to partial and then full operation. Refineries have been bombed in Russia as well, which has taken more oil products off the global market. Thus, two wars, both conducted for protection against rogue militant states that do not accord with international laws and do not respect human rights at all (Russia and Iran). Russian refinery output has dropped dramatically to about 60% capacity utilization, the lowest in 20 years. Meanwhile, U.S. refineries are operating at over 95% average capacity utilization. We are also exporting refinery products as much as possible. They estimate that distillate exports averaged 1.56 MMb/d, 30% above the five-year average, in the past quarter. Thus, we can’t really refine or export any more than we are right now. But China can.

      They note that China has government controls on how much oil is refined and how much oil products are exported. They explain the details below:

“Crude-import quotas are one measure China uses to maintain market control. Independent “teapot” refiners generally need government authorization to import crude, allowing Beijing to influence both the volume of crude entering the country and which refiners can access it. State-owned companies such as Sinopec, PetroChina and CNOOC are subject to fewer of these constraints but remain closely aligned with broader government priorities, particularly energy security and domestic supply.”

“Refined product exports are another powerful tool. Beijing allocates export quotas for gasoline, diesel and jet fuel, effectively determining how much surplus production can be placed into international markets. When quotas are tight, refiners have less incentive to run at high rates because their ability to export excess product is constrained. Larger export allowances can have the opposite effect, allowing refiners to capture overseas margins and supporting higher utilization.”

     As the graph below explains, Chinese refiners dropped exports to about 400Mb/d due to the Strait of Hormuz disruption but are back up to normal at about 1 MM b/d since August. They note that China could double that export output to 2MM b/d, which would increase capacity utilization from the current 80% to about 85%.

     I had wondered when I saw the article headline whether Trump and Xi talked about this issue a couple of days ago when they met, and apparently the authors wondered as well. Trump asked Zelensky to stop bombing Russian refineries but I think he has a right to do whatever is necessary to thwart a brutal invading enemy.

“China’s refining sector won’t single-handedly solve the global refined-products squeeze, but it represents one of the few meaningful potential sources of additional supply available to the market in the short term. Beijing’s control over crude imports, refinery operations and, most importantly, export quotas gives it the ability to influence how much product reaches international buyers. With Middle Eastern and Russian supply still constrained and U.S. refiners running near full tilt, even a modest increase in Chinese exports could take some pressure off global balances. The question is not whether China has the barrels, but whether Beijing decides it wants to supply them to meet global market needs. With President Trump scheduled for a state meeting with Chinese President Xi Jinping on Thursday in Washington, the topic certainly could come up. While refined product exports are unlikely to be a headline Trump-Xi negotiating item, they could be part of a broader discussion about global fuel availability and energy-market stabilization, topics of mutual interest to the U.S. and China.”

    

 

References:

 

Help! – With Refining Capacity to Spare, China Could Help Ease Global Gasoline, Diesel Crunch. Jason Lindquist and John Auers. RBN Energy. September 23, 2026. Help! – With Refining Capacity to Spare, China Could Help Ease Global Gasoline, Diesel Crunch | RBN Energy