Vitol’s Muller Expects China to Release 25-30 Million Barrels of Strategic Oil Reserves in Q4

China’s “irrepressible” economic growth; high demand for oil

Strategic release is bullish for long-term oil prices

The decline in Chinese oil imports in the first half was the first since 2013

China is expected to release between 25 and 30 million barrels of its strategic oil reserves in the fourth quarter of 2021 as economic growth accelerates and stocks decline in the world’s second-largest oil consumer, said Aug. 1 the head of Vitol Asia. .

“The underlying demand is there and it’s just a matter of how it’s going in stocks,” Mike Muller said during the Gulf Intelligence webinar. “They released oil from stocks. We believe China’s oil reserves will see a 25-30 million barrels of oil drawdown in the fourth quarter of this year, which will need to be replenished at some point as the economy continues to shrink. grow.”

The reduction in strategic reserves could weigh on oil prices in the spot market in the short term, but will be bullish in the long term, he said.

“What it does is it dampens the enthusiasm of the rapid cash market over the next few months,” he said. “But in the longer term, it is assumed that the oil has to be put back on, especially if strategic oil reserves are held for strategic reasons. China’s growth is unstoppable, and it will continue to point north and that will manifest itself in inventory drawdowns and ultimately in higher demand. “

Oil imports in the first half of the year

China’s crude oil imports in the first half of 2021 fell for the first time in eight years, driven by a sharp drop in year-over-year entries in May and June, as prices rose sharply. International oil companies prompted importers of Asia’s largest oil consumer to defer purchases and dip into domestic stocks instead.

The country’s crude inflows in the first half of the year fell 2.5 percent year-on-year to 10.56 million barrels per day, the first drop in crude imports that China has seen since 2013, the data. released on July 13 by the General Customs Administration showed.

According to data intelligence firm Kpler, China’s crude inventories fell to their lowest level in 14 months at 879.46 million barrels in June.

But analysts and industry officials expect China’s oil imports in the second half of the year to pick up and drive overall growth for the year, as the anticipated commissioning of new refining capacity would create additional demand.

China’s global imports in 2021 could increase 1% year-on-year to 11 million bpd, according to estimates from S&P Global Platts Analytics.

Saudi PSOs

Saudi Aramco is unlikely to significantly increase the premium on its crudes when it releases its official selling prices for September this week, Muller said.

“The consensus is that they’ve been a bit on the hawkish side because they were able to do it because they wanted to reflect the fact that they are withholding supply from the market,” Muller said.

“While most people’s business models predict that they can increase the Arab light and average Arab premium by 50 cents or more, there is an opinion that they will not or should not do so in order to do not send the wrong message because more OPEC and OPEC + oil is coming to the market. “

Saudi Aramco is likely to increase its OSPs by around 50 to 60 cents / bbl for lighter grades and 20 to 30 cents / bbl for medium and heavy crudes, traders previously told Platts.

Saudi Aramco had raised OSPs for loading crude to Asia from 80 cents / bbl to $ 1 / bbl, compared to a 74 cents / bbl month-over-month jump in the cash / bbl. Dubai paper in June.

This time around, however, traders say OSP increases could be more measured given the OPEC + alliance’s plan to start increasing production and the low point differentials seen in trade for the cycle. September loading commercial this month.

OPEC + began on August 1 to increase production by 400,000 b / d per month until December under a new agreement reached on July 18, which will result in a total increase of 2 million b / d ‘by the end of the year.

This will help alleviate a market that analysts say has become increasingly tense, with global demand for oil on the rise due to seasonal factors and the world’s continuing emergence of the pandemic.