China will export diesel in August at the highest volumes since at least 1999 as its local market cannot absorb all of the fuel its refineries are pumping out and inventories are full, sources close to the matter said.

The expected ramp-up in diesel exports from the world’s No 2 oil consumer will add to a global glut and reduce processing margins further as Opec kingpin Saudi Arabia has already stepped up its exports of the middle distillate.

Asia’s gasoil margins dropped to their lowest in more than five years under the weight of the surplus supplies. China is expected to ship out about 900,000 tonnes of the industrial fuel in August, according to three sources close to the matter. That would be the highest volume since at least 1999, when Thomson Reuters first started tracking customs data.

The increase would also overtake the current post-1999 peak of 669,831 tonnes of diesel exported in June, according to customs data.

"The tanks (in China) have been full to the brim since May 1. It’s so much oil that they are at maximum capacity," one of the sources said. July exports, though, are expected to be a bit cooler at a minimum of about 410,000 tonnes, the source said. China’s diesel exports have been rising as its domestic sales have been shrinking on slower economic growth and a rebound in oil prices.

An annual ban on fishing in the South China Sea from May 16 to August 1 is also driving the higher shipments of diesel from China, once a key importer of the fuel, traders said.

A record refining throughput in June of 10.59 million barrels per day (mbpd) and a rise in oil prices could also have led to the higher exports, said Barclays analyst Chi Zhang.

Beijing has more than doubled the export quota volumes for diesel in the third quarter compared with the previous three months, raising total export quotas so far this year to 5.5 million tonnes compared with just less than 2 million tonnes shipped over January-June. Still, the diesel export run will likely not last as China does not want to be too dependent on exports, Barclays’ Zhang said. "China still seeks to be self-sufficient rather than becoming a major oil exporter. It’s still heavily dependent on crude imports," he said.