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Energy

UPDATE 3-China to hold first state crude oil reserves auction on Sept. 24

    * State reserves administration announces 1st public oil
auction
    * 7.38 mln bbl for sale on National Oil Reserve Centre
platform
    * Volume is worth around $540 mln based on current market
prices
    * Barrels on offer include Abu Dhabi, Oman, Qatar crude oil
grades

 (Adds detail, analyst and trader comment)
    BEIJING, Sept 14 (Reuters) - China's state reserves
administration said on Tuesday it would auction around 7.38
million barrels of crude oil, mostly from the Middle East, on
Sept. 24, marking its first ever public sales of strategic oil
inventories. 
    The National Food and Strategic Reserves Administration last
week said it would release oil reserves to the market in phases
to help stabilise prices.
    The volumes on offer in the first auction, which will be
held on a National Oil Reserve Centre platform, were broken down
into five crude oil grades. 
    Some 2.95 million barrels of Abu Dhabi's Murban is up for
grabs, along with barrels of the emirate's Upper Zakum grade,
Qatar Marine, Oman crude and Forties Blend from the North Sea,
details provided by the administration showed.
    All of the oil is currently being stored in bonded
warehouses in the port city of Dalian, in northeast China's
Liaoning province. 
    Most was delivered into reserve tanks in April and May 2020,
suggesting it was picked up at very low prices amid a historic
plunge in crude futures last year as the rapid spread of the
coronavirus battered fuel demand.
    "By auctioning some of the lowest-cost reserves, the sales
may help cool prices but also make a profit - killing two birds
with one stone," said a Beijing-based oil trader, estimating the
oil was bought at an average of $40 a barrel. 
    Benchmark Brent crude has gained some 42% this year
as oil demand bounces back. It was trading up 0.3% at $73.70 as
of 1453 GMT, meaning the 7.38 million barrels being auctioned
would fetch around $540 million at current market prices.       
    China, the world's biggest importer of crude oil and most
other major commodities, has been taking various steps to try to
tame rising commodity prices this year, including selling off
strategic metal stockpiles for the first time in over a decade.
    It rarely releases any information on its Strategic
Petroleum Reserve (SPR).
    "This round is much smaller than market expectation and this
is likely the only batch for this year," Energy Aspects analyst
Liu Yuntao said by email. "So it's bullish (for prices)."
    "China will make SPR rotation more frequently, but probably
only ... from next year. This one looks like a trial run."
     Bidders must comply with national refining industry policy
and have sufficient import quotas to take the bonded crude, the
administration said in its notice, adding that the oil should be
used for the production of chemicals.
    The administration said last week the release was mainly for
integrated refining and chemical plants.
    Potential bidders should deposit a trading margin - set at
40 yuan ($6.21) per barrel - to a designated account by 5 p.m.
Beijing time (0900 GMT) on Sept. 22, the administration said.   
 There will be a mock bidding session the following day before
the real auction on Sept. 24.
    No transaction fee will be levied on any sales, the notice
said, adding that volumes purchased at auction were not for
resale.
    
The table below shows a breakdown of the crude on offer, as
described by the state reserves administration.

               Grade         Volume (barrels)
 Batch 1       Qatar Marine        951,137.06
 Batch 2       Forties           1,095,565.49
 Batch 3       Oman              1,790,956.51
 Batch 4       Murban            2,953,927.17
 Batch 5       Upper Zakum         592,030.55
 Total                           7,383,616.78
    
($1 = 6.4380 Chinese yuan renminbi)

 (Reporting by Muyu Xu in Beijing, Chen Aizhu in Singapore and
Tom Daly
Editing by Pravin Char and Mark Potter)
  
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