China Leads Asia's Joint SPR Release With US

Copyright © 2021 Energy Intelligence Group

In a show of unity with Washington, major Asian oil consuming nations have agreed to release crude from their strategic petroleum reserves in coordination with the US in the hope of putting some downward pressure on oil prices.

The volumes to be released by China, India, Japan and South Korea are unlikely to exceed 20 million barrels. China — the world’s second-largest oil consumer — is expected to make the largest contribution.

However, four Asian trading sources said the market had already priced in a release of strategic petroleum reserve crude and that implementation of the plan may not have the intended effect of pushing prices below recent levels of $80 per barrel or more.

China Leads the Pack

Chinese sources said Beijing would release 7.33 million barrels of crude, which is about the same size as its first auction of strategic petroleum reserve crude in September.

China's National Food and Strategic Reserves Administration auctioned 7.38 million barrels of crude, but only 4.43 million bbl were purchased by PetroChina and privately owned Hengli Petrochemical.

Local consultancy JLC said the second strategic petroleum reserve release will take place at the Zhoushan strategic petroleum reserve site in the eastern province of Zhejiang.

China had been expected to release more crude in a second auction, but the government has not framed the expected move as a coordinated effort with the US.

Beijing may choose not to announce details of the upcoming auction for the time being to avoid the appearance of doing Washington's bidding.

A foreign ministry spokesman said on Wednesday that China would release oil reserves according to its own needs, adding that the country was in close communication with oil-producing and oil-consuming countries.

China is currently estimated to hold 270 million bbl of oil in its government-managed strategic reserve and just below 800 million bbl in commercial inventories.

China's government-controlled Global Times tabloid said in an editorial that while joint action to would benefit the world's two largest oil consumers, China has "the upper hand" because inflation is a less pressing issue for Beijing than Washington.

India, Strategic Allies Support

Despite its modest strategic petroleum reserve capacity of just 39 million bbl — barely enough to cover nine days of imports — India has agreed to release 5 million bbl of crude.

"India strongly believes that the pricing of liquid hydrocarbons should be reasonable, responsible and be determined by market forces," the oil ministry said in a statement.

Japan and South Korea have acceded to the US request on the understanding that the release would not affect International Energy Agency (IEA) requirements for its members to hold stocks equivalent to at least 90 days of net oil imports.

Crude imports by both countries have recently averaged 2.4 million-2.6 million barrels per day.

Japan's industry minister, Koichi Hagiuda, said on Wednesday that the Japanese government would release "a few hundred thousand kiloliters of oil."

Timing of Sales

Japan has not provided details about timing but the Nikkei newspaper reported that it will hold an auction for about 4.2 million bbl of crude by the end of this year.

A local analyst said Tokyo's willingness to join the initiative might reflect the hope that it will prompt the Biden administration to lighten the pressure it has been putting on Japan about its fossil fuel-friendly policies.

Japan declined to join the coal phaseout pledge at the recent COP26 climate meeting in Glasgow.

According to IEA data, Japan's government holds just over 300 million bbl of crude and 25 million bbl of refined products in the country's strategic reserves.

South Korea did not reveal the amount of oil it plans to release, but local reports suggest it would be similar to the volume it released in response to the disruption of Libya's oil production in 2011 — 3.47 million bbl.

State-owned Korea National Oil Co., which operates the country's strategic reserves, said it holds 97 million bbl, excluding reserves held outside its own borders.

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