Beijing is the capital of China.The Chinese regime intends to hold its first public auction of state crude oil reserves to a select group of domestic refiners, according to the reserves administration, as Beijing seeks to lower raw material costs for manufacturers.
The releases will occur in stages and are intended for integrated refining and chemical plants, according to a statement issued late Thursday by the National Food and Strategic Reserves Administration.
The sales will “better stabilise domestic market supply and demand,” according to the agency, which also plans to release and replenish China’s oil reserves on a regular basis.
StandardizationBrent crude oil prices have risen by around 40% this year as demand recovers from the coronavirus-caused collapse in 2020. Brent dropped 2% on Thursday but was trading higher on Friday.
China’s international crude futures are up 50% this year and up 80% year on year.
The agency did not specify the volume or timeframe for the auctions in its four-sentence statement.
According to traders and analysts, the vague wording and lack of detail caused some confusion among market watchers as to whether the auctions had already taken place or would take place in the future.
The agency did not respond to Reuters’ request for additional information.
There has also been market speculation about unconfirmed oil reserve sales in July and August, which sources familiar with China’s strategic reserves system refused to confirm or deny to Reuters.
Goldman Sachs analysts estimated the sale at 22 million barrels, and said it most likely occurred in August, contributing to a slowdown in Chinese crude purchases this summer.
China’s crude imports fell by 5.7 percent year on year from January to August, despite August volumes increasing by 8 percent from July.
According to ING analysts, the announcement appears to confirm previous sales but also points to future auctions.
The Chinese regime has kept the location of its strategic reserves a closely guarded secret. The last public figures for China’s Strategic Petroleum Reserve (SPR) were released in 2017, when the regime announced the construction of nine crude oil storage bases with a total reserve capacity of approximately 238 million barrels.
Early in July, consultancy Energy Aspects estimated that China’s SPR sites held 220 million barrels of crude oil, equivalent to 15 days of demand. “The SPR announcement comes at a time when the outage at Shell’s Mars platform is forcing Chinese majors to scramble for alternatives, as many of the 10–12 million barrels of Mars cargoes purchased for September and October loadings have been canceled,” Energy Aspects analyst Liu Yuntao said. Liu anticipates that the auctions will release no more than 10–15 million barrels at a time.