Chinese SPR crude auction, amid falling US inventories

Crude prices remained firm, above 74 $/b for the ICE Brent November contract. The Chinese Food and Strategic Reserve Administration will release 7.3 mb of crude on September the 24th, amid falling commercial inventories in China, which prompted Chinese officials to utilize their strategic reserve in a more proactive manner to limit inflationary pressure. The volume remains limited, amounting to about 3 VLCCs, which would be a monthly buying program for a 250 kb/d refinery. Therefore, there is limited scope for this stock release to materially impact Asian crude markets. Sweet crudes in Asia such as Sokol or ESPO were bid up by independent refiners following the news and in anticipation of Q4 import quotas deemed to be released imminently. 

The API survey, probing US petroleum inventories, showed larger-than-expected draws across the board. Indeed, crude stocks may have declined by another 5.4 mb, while gasoline and distillate stocks respectively declined by 2.7 and 2.9 mb. There might be some discrepancy between what the API reported and Kpler satellite measurements, which reports crude builds, but we believe the API survey depicts a more accurate reality, as US production shut-ins in the Gulf of Mexico remain significant, at 0.7 mb/d.