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China's integrated refiners wait for release of crude reserve auction details

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China's integrated refiners wait for release of crude reserve auction details

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Details likely to be released as early as this week

Seen dampening Q4 crude imports by 100,000-450,000 b/d: Platts Analytics

China's oil market and refining industry participants are expecting the process Beijing will employ to release its crude oil reserves to be similar with that for other commodities, as they wait for more details of the state's crude open auction sales, which could be released as early as the end of this week.

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The country's National Food and Strategic Reserves Administration announced Sept. 9 that it will conduct a crude reserve auction, part of Beijing's serial state reserve release, following the same for cotton, grain, copper, aluminum and zinc.

The crude reserve release aims to ease rising feedstock pressure on the refining industry and integrated refineries are allowed to attend the auction.

"Details of the auction will be released soon, and we expect there are at least three batches of releases by auctions like other commodities," a Beijing-based analyst said.

The NFSRA has released three batches of state reserves for copper, aluminum and zinc since June 16 when it first announce the public auctions.

A week later on June 22, the administration published details for the release of the first batch, which included volume, bidding date, which was July 5, the year at which the batch of stocks to be released were first put in storage, the producer of the stock as well as its storage location.

About 200 companies attended the auctions for copper, aluminum and zinc and the deals were done below market prices. For example, the highest bid for aluminum was Yuan 18,474/mt on July 5, lower than the closing price of Yuan 19,680/mt for the most active aluminum futures on the Shanghai Futures Exchange on July 5.

Analysts with state-owned refineries, consultancy and investment banks have different projections as to the total volume of crude reserve likely to be released -- ranging from 3 million mt to 10 million mt (22 million-73 million barrels) -- given that China's current state reserve and commercial crude stock amounted to over 900 million barrels.

"We expect China's crude imports to grow by 150,000 b/d on the quarter and 300,000 b/d on the year to 10.7 million b/d in Q4 after deducting the high-side SPR release impact of 450,000 b/d from our original forecast. On the low-side impact of 100,000 b/d, the above growth in crude imports will still be 500,000 b/d on quarter," S&P Global Platts Analytics said in its report dated Sept. 10.

As a result, the world's top crude importer is likely to see its crude imports decline by at least 2% year on year in 2021, the first reduction since 2001, according to Platts Analytics.

China has been destocking crude oil this year, which led to a 5.7% drop in its crude imports to an average of 10.45 million b/d over January-August, its customs data showed.

The country's crude stock build was hefty in 2020, most of which were sour grades, when prices had slumped following the COVID-19 outbreak.

On Sept. 13, Dubai crude was assessed at $70.99/b, surging from $39.17/b on Sept. 14 of last year, Platts data showed.