China to auction off state oil reserves to help refiners

China’s state reserves administration said on Thursday it would release crude oil reserves to the market via public auction to ease the pressure of high feedstock costs on domestic refiners.

The release, described as a first, will be made in phases and is mainly for integrated refining and chemical plants, the National Food and Strategic Reserves Administration said in a statement. That potentially rules out the participation of some smaller, independent refiners known as “teapots”.

The move will “better stabilise domestic market supply and demand and effectively guarantee the country’s energy security,” the administration added, without specifying the volume of crude it would sell or when.

China, the world’s biggest crude oil importer, is famously secretive about its strategic petroleum reserve (SPR).

It has repeatedly taken steps to cool a rally in the price of key commodities this year, even auctioning off state metal reserves for the first time in more than a decade to try and keep manufacturers’ costs down.

Even so, factory gate inflation hit a 13-year high in August, data published earlier on Thursday showed.

The out-of-the-blue announcement from the reserves administration comes with benchmark Brent crude oil prices up around 40% this year amid a rebound in energy demand after a coronavirus-led collapse in 2020.

Brent fell as much as 1.9% following the announcement before recovering to trade up 0.4% at $72.89 a barrel as of 1502 GMT.

Consultancy Energy Aspects in early July estimated China’s SPR sites hold 220 million barrels of crude oil, equivalent to 15 days of demand.

“The SPR news 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 bought for September and October loadings have been cancelled,” Energy Aspects analyst Liu Yuntao said.

Royal Dutch Shell Plc (RDSa.L) shut the Mars platform in the Gulf of Mexico late last month as Hurricane Ida approached.

Liu predicts releases via auction would sell 10-15 million barrels at a time, at most.

The last public figures for China’s SPR were given in 2017, when the National Bureau of Statistics said the country had built nine storage bases with total reserve capacity of 37.73 million cubic metres, or 237.66 million barrels, of crude oil.

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