"Gasoline demand is not good but diesel inventories are thin. So the mandate from the headquarters is to boost diesel production to supply the domestic market and also to raise exports," one of the Sinopec sources said.
A Sinopec spokesperson declined to comment.
Further boosting supply, China's largest private refiner Zhejiang Petroleum and Chemical Co (ZPC) is raising diesel output by cutting petrochemical production.
EXPORTS
With the rise in production, exports of diesel, gasoline and aviation fuel may top 6 MMt in November, highest since the early days of COVID-19 in April 2020, according to estimates by analysts and China-based industry sources.
Diesel exports may reach 1.8 MM to 2.2 MMt for the month, highest since June 2021, according to estimates by Wood Mackenzie, JLC and Refinitiv, as refiners are lured by gasoil, or diesel, refining profits that have more than tripled in Asia this year.
Chinese shipments are mostly destined for Southeast Asia in October and November, data from Refinitiv and Kpler showed, as the arbitrage window - which determines if a commodity can be shipped from one geographic region to another at a profit - to the West is closed.
Gasoline exports could rise to as much as 2 MMt - a level last seen two years ago - as overseas sales are still more lucrative compared to the local market, according to Chinese consultancy JLC and two China-based trading sources.
"Refiners were rushing to use up the (export) quotas, attracted by the good margins, while tepid demand at home was another push factor," said a Beijing-based trade source.
China has stuck to a strict COVID-19 containment policy for almost three years, even as economic damage mounts and frustration with Beijing widens. Lockdowns have become more frequent and China's borders remain mostly shut, hurting domestic gasoline and aviation fuel sales.
Reporting by Chen Aizhu and Trixie Yap; Editing by Florence Tan and Tom Hogue