China tests oil market with first oil reserves auction

The initial sale of your strategic oil reserves (SPR) will be small: 7.38 million barrels, about half a day of use in China. It is a marginal volume in a global market that consumes almost 100 million barrels per day.

Even so, It shows that Beijing is prepared to sell stocks that were previously off limits and that it intends to be more active in domestic oil markets when high prices threaten to undermine the economy.

“With the kind of market power that China has, the launch has huge symbolic significance as the first public sale of SPR, as just three years ago the debate was still about how China’s SPR works and its regulation,” he claimed Michal Meidan, Director for China at the Oxford Institute for Energy Studies.

China, the world’s second-largest oil refiner and a major consumer of most other raw materials, has also made sales of strategic reserves of metals, coal and corn to help control factory inflation that peaked at 13 years in August.

“I see it as a test, both in terms of the internal mechanism and the impact on the market (…) to contain inflation and (…) learn to use the SPR as the United States does”Meidan said.

Other market watchers said the timing of the sale, just as world oil prices are hovering around $ 75 a barrel, The 40% rise this year indicates that Beijing expects to drive crude costs down.

“The Chinese have more power to do that now because they are the main importer of crude oil,” said Tony Nunan, Senior Risk Manager at Mitsubishi Corp.

Next week’s auction of reserve tanks in Dalian, northeast China, will mark the first public sale of the country’s strategic oil reserves since it began pumping oil into reserve tanks 15 years ago.

Petroleum

Managed by the National Petroleum Reserve Office, the sale will take place through a recently established electronic system called the platform. National Center for Petroleum Reserves, which has a website that details the trading rules and risk parameters for participants.

The government has said it will release reserves in phases and regularly rotate its oil reserves. The National Food and Strategic Reserves Administration, which oversees the oil reserves office, did not respond to a request for more details.

China has kept information about the size of its reserves, leading to a wide range of estimates of how much its tanks contain: from 220 million to 384 million barrels, or between 16 and 27 days of refinery performance.

By Chen Aizhu and Florence Tan (Reuters)

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