First time in China! State reserve crude oil is about to bid trade, put on the market

The country's oil reserves, which are closely guarded, have been in the spotlight recently.

The National Food  Strategic Reserves Administration has announced that it will for the first time organize the release of national crude oil reserves in phases  batches on a rotating basis. On September 14, the National Petroleum Reserve Center announced the detailed rules of the first batch of national reserve crude oil bidding.

Crude oil is an important material related to the national economy  people's livelihood. It has been 15 years since the first reserve base was built in 2006. China has announced the news of state crude oil storage on the market for the first time.

01 The state stepped in to stabilize domestic markets

As the lifeblood of economic development, petroleum is of great significance to social security  stability,  its related oil price, exploration  discovery, import  export,  scientific  technological achievements are all concerned by all circles.

The strategic petroleum reserve is a necessary means to prevent short-term oil supply shortage, guarantee energy  economic security,  deal with emergencies such as wars, natural disasters, economic crises  oil price fluctuations.

According to information released by the State Reserve Administration, the crude oil release will mainly target domestic refining  chemical integrated enterprises to ease the pressure of rising raw material prices for production enterprises.

Petroleum  petrochemical enterprises are responsible for the supply of energy  petroleum products. In recent months, the rising cost of raw materials caused by the rise of international oil prices has affected the production  operation of enterprises, attracting national attention.

Brent crude topped $75 a barrel in June, closing above that level for the first time since late October 2018. Oil prices are currently trading around $75, reaching a high of $77.84 a barrel on July 6  $76.13 a barrel on September 15, with the agency's forecast of $80 a barrel within reach.

Oil prices have repeatedly approached 80 per barrel,  the STATE Reserve Bureau decided to release crude oil reserves at this time to ease the cost pressure of enterprises, revealing the signal that China hopes to regulate oil prices  stabilize the domestic market. This is the first time for China to take this measure, giving play to the role of national reserve crude oil market in allocating resources, which is of symbolic significance.

The state Reserve Bureau (SRB) said that regular rotation of national oil reserves is an important way to play the role of reserve market regulation. Releasing crude oil reserves into the market through open bidding will better stabilize supply  demand in the domestic market  effectively guarantee national energy security.

02 Such businesses will be eligible to participate

Which enterprises are eligible to participate in the bidding of the first batch of national crude oil reserves? According to the announcement, participating companies must meet the following conditions:

(1) it conforms to the national refinery industry policies  has sufficient allowance for import;

(2) Good credit, no record of major violations of laws  regulations in recent three years;

(3) The crude oil purchased is mainly used for the production of chemical fiber  other raw materials,  for resale  subject to the supervision  inspection of relevant departments;

(4) identify  accept the transaction rules, sales contract template, quantitative  qualitative differences, transaction risks  other contents published in the public notice;

(5) Provide relevant materials  sign a letter of commitment as required by the transaction rules to ensure the authenticity  effectiveness of the materials.

"Sufficient import allowance" means that the company must be qualified to import crude oil  still have sufficient surplus import allowance for the current year. Companies that are  qualified to import crude oil  do  have enough remaining quotas for the year will  be able to participate in the deal, according to the restriction.

"Purchased crude oil is mainly used for chemical fiber  other raw materials production, self-use  resale", stipulates the use of this batch of crude oil, but also to participate in the bidding business requirements, must have chemical fiber  other production capacity.

In addition, according to the transaction rules, "the buyer who has no objection shall sign the sales contract with the seller within 7 working days after the auction closing date (excluding the closing date)"  "the buyer shall make the full payment for the contract to the seller within 5 working days after the signing of the sales contract", which requires the financial strength of the participating enterprises.

Comprehensive relevant transaction details, to participate in the bidding transaction, will be concentrated in large state-owned petroleum  petrochemical enterprises, a part of the surplus import permits sufficient private enterprises will also participate in the large training.

03 China's first launch is of great significance

China began to plan to establish a strategic petroleum reserve base in 1993. In 2006, the first national petroleum reserve base, Zhenhai Base in Ningbo, Zhejiang Province, was completed  put into use.

By mid-2017, China had built nine national petroleum reserve bases -- Zhoushan, Zhoushan expansion, Zhenhai, Dalian, Huangdao, Dushanzi, Lanzhou, Tianjin  Huangdao National Petroleum Reserve caverns -- to store 37.73 million tons of crude oil, according to public data  the National Bureau of Statistics.

The first batch of crude oil will be stored in Dalian, Liaoning province, which will benefit neighboring companies  its geographical location.

In terms of warehousing time, they were in April, May  August of 2020. In April last year, some major oil consumers increased their stockpiles as oil prices plunged to epic lows. The oil that our country puts into the market this time will have good price advantage.

According to the work arrangement, the total sales volume of the first batch is 7383,616.78 barrels, about 1 million tons.

In 2020, China's refinery processing capacity will reach 674 million tons. Compared with the huge annual processing scale, the 1 million tons of crude oil released this time will obviously have little impact on the market supply  demand pattern.

A large refinery project can process thousands of tons of crude oil every year,  one million tons of crude oil has very limited influence on the enterprise.

But even so, the deal is significant. The official announcement has said that the release of reserves will be phased in batches, implementing a regular rotation of the country's oil reserves.

The petroleum  petrochemical industry has a special status,  the stable production  operation of large petroleum  petrochemical enterprises is also regarded as an important factor to ensure national economic development. With the help of national crude oil reserves, the regulation of the domestic market, once again let the outside world see the national level of oil market stability.

The auction will be conducted on The National Reserve Petroleum Trading System on September 24, 2021  will be for bonded crude oil with a minimum mark-up of $0.50 / BBL. Bidding transaction results, we will pay attention to.

For more information about energy trading platform, please consult Eurasia International Energy Trading Market Management (Jiangsu) Co., LTD., the manufacturer of financial service platform, storage  logistics platform, dangerous chemical business license application platform  bulk energy trading platform.

Source: International Petroleum Network