China to release oil products from state reserves as global prices soar
China has decided to release oil products from state reserves weeks after it held its first auctions from state crude reserves, a sign Beijing is stepping up efforts at home to ensure plentiful domestic supplies and battle inflation at a time global energy prices are going through the roof.
Not just oil, but China’s decision to release stocks of many commodities — and in the case of some commodities for the first time ever — has had limited impact on prices so far since the volumes have been low. But analysts said Beijing would not shy away from releasing additional stocks, at least until markets remain inflated.
“Contrary to the United States, China has clearly implied a desire to alleviate price pressure as a justification for the strategic release, and that it may frequently draw down and build up reserves,” said Paul Sheldon, chief geopolitical advisor at S&P Global Platts Analytics.
The country’s National Food and Strategic Reserves Administration said Oct. 31 that China would release state oil product reserves to the domestic market to offset a supply shortage and stabilize prices in certain regions.
With approvals from the National Development and Reform Commission and the Ministry of Finance, the NFSRA has started its annual state oil product reserves rotation to increase gasoil and gasoline supplies in the domestic market, as part of its role to adjust market fundamentals, the administration announced on its website.
It is not the first time that NFSRA has carried out annual state oil products reserves rotation. The administration has also released stocks previously, sources with knowledge of the matter said.
No word yet on volumes
The announcement did not mention the actual volumes to be released or the regions being targeted.
International crude prices extended their rally in the week ended Oct. 30, with the S&P Global Platts physical sour crude benchmark cash Dubai rising to $84.34/b on Oct. 25, its highest level since $84.41/b assessed Oct. 4, 2018.
China has suffered from an oil products supply shortage since September, especially gasoil, as refineries slashed output while a new hefty consumption tax on imported light cycle oil — a blending material of gasoil — shut access to inflows.
Sinopec, the world’s biggest refiner by capacity, slashed its gasoil output by 10.3% year on year in January-September, followed by PetroChina, whose production slumped 11% in the same period, according to the companies’ third-quarter results released Oct. 28.
As a result, the wholesale price of zero-vapor 10 ppm gasoil in eastern China’s Shandong province started to rally in late September to Yuan 8,893/mt on Oct. 21 from around Yuan 6,650/mt ($139.48/b), according to market sources.
The price more recently fell to Yuan 7,828/mt ($164.28/b) on Oct. 28 from the peak, as Beijing urged state-run companies to ensure domestic energy supplies.
Improving supply situation
Sinopec has already raised its gasoil supply by about 20% from the monthly average level in the first three quarters of the year, and will further boost supply in November by 29% month on month, it said in a press release Oct. 28.
PetroChina lifted throughput by one percentage point to 76% month on month in October, while CNOOC fixed imports of 50,000 mt of gasoil in early November, Platts previously reported.
Moreover, China is likely to keep all its gasoil barrels at home and skip exporting the middle distillate in November to guarantee domestic supplies, market sources said.
To ease high feedstock costs faced by the refining industry, NFSRA also announced a release of state crude oil reserves to the domestic market via auctions Sept. 9.
The first attempt of state crude reserves auctions was completed Sept. 24 with PetroChina and Hengli Petrochemical (Dalian) said to have been awarded 4.43 million barrels of crudes. There have been no announcements from the administration on the next round of auctions.
“Increasingly active Chinese inventory policies would add a layer of uncertainty to market forecasts, as well as OPEC+ production plans,” Sheldon added.
Market watchers will keep a close eye on the next OPEC+ meeting scheduled for Nov. 4, where the producer alliance is expected to review their collective output decisions for December.
Asian consumers, end-users and refiners continue to call for a more aggressive production and supply hike from OPEC+ as current oil prices appear overheated.
The OPEC+ stuck to its original plan to increase crude oil production in November by just 400,000 b/d at the previous Oct. 4 meeting, but nine major Asian refiners surveyed by Platts, including BPCL, Petronas, SK Innovation, ENEOS, PetroChina and PTT, said OPEC+ should ideally raise supply by at least 800,000 b/d.