Thread by @Big_Orrin

1. Thread: thought I would put all tweets in one place

Platts and Physical market analysts indicated today that they expect China to release much more from their strategic reserve than previously thought

The believe between 5 and 10 million tonnes (36 and 73mb)
will be released

2. That means before the end of 2021 100mbpd or more could be released from global strategic reserves into commercial inventories for refiners to use

China: 36-73mb
US: 20mb plus crude swaps
India: 4.3mb

3. Why is this significant? because strategic inventories are seen as off market unless an emergency. For China to release from their SPR to affect price suggests that Chinese strategic inventories have more in common with commercial inventories than traditional strategic ones

4. That means global commercial inventories are larger than we believed. It also means that China believe they have enough crude inventories to be proactive with.

5. China according to satellite tracking has about 900mb of crude inventories not 220mb as suggested. China owns all the NOCs and requires that independents hold strategic reserves for the country as well. It means they have huge power. The swing demander

6. China’s goal is likely to stop prices going too high. If prices fall that is a bonus. For every $1 China prevents the market going up between Oct and Dec will save them $900m.

7. If they keep prices around $75 for Brent then they will save $9bn if they stop the market reaching $85.

8. As @anasalhajji has shown consumers and producers can both live within the $65-75 range. As said previously this a preventative measure for allowing the price to increase and a bonus for China if it falls.

9. This is alsp likely a short term action from China as OPEC+, IEA and EIA all expect that supply growth will be significantly more than demand growth in 2022. If it is the case then prices may fall from current levels and China buys back its strategic inventories used.

10. Now if China does do 73mb, it will all be sold to Chinese refiners. It will mean that Chinese refiners buy and import less. It could also see quotas reduced for teapots. This will leave more inventories elsewhere even in floating storage

11. It will definitely push down differentials which will also benefit China. But the funny thing is that adding inventories is seen as bullish despite releases from SPRs in the past being seen as bearish. Extra inventories are extra inventories after all.

12. 73mb is nearly 1mbpd extra production in the October- December period. Would the market look bullishly at a 1mbpd increase in shale? I think we are about to enter interesting times where China uses its inventories for its benefit not just during an emergency.