IEA cautions China on use of strategic oil stocks

SINGAPORE, Nov 9 (Reuters) The International Energy Agency (IEA) said on Thursday that China's new strategic oil reserves should only be used in the case of real supply disruptions and not for commercial purposes.

''It's a problem to know how Chinese authorities will use their stocks,'' Claude Mandil, executive director of the West's energy watchdog, told Reuters on the sidelines of an industry conference.

''Our strong thought is that they should only be used in real supply disruptions,'' he said. ''It's bad for everybody to use strategic stocks for market purposes.'' China has rented out a third of the storage space at its first strategic oil reserve to state-run refiner Sinopec, stoking Western fears that Beijing may use its emergency stocks more readily than OECD nations.

Sinopec, Asia's biggest refiner and China's primary crude oil importer, has secured a deal to use 10 million barrels of storage at the new tanks in eastern China, and is in talks to double that, industry sources told Reuters on Wednesday.

Analysts said China was likely to take a different approach than the industrialised members of the IEA, gatekeeper of 1.5 billion barrels of government stocks in Europe, Japan and the Americas. The IEA has only co-ordinated a global release twice in its 32-year history.

Asked about the lease of storage space to Sinopec, Mandil said that in the case of many IEA countries, stocks were in the hands of commercial authorities. But he added: ''It's important that they can only be used with government approval.'' TRANSPARENCY NEEDED A U.S. official said last week Washington was worried that China might be tempted to tap into its strategic stockpiles if it sees high oil prices are impeding its economic growth.

''If they use it to lower prices, it will only work for a few weeks, you would have used up your stocks and it adds volatility on the market,'' Mandil said. ''They (China) need to be more transparent.'' While Mandil commended China's commitment to have such reserves, he said that prices were still high for them to fill the tanks.

China, which now imports nearly half its crude, pumped the first drops into the storage tanks at Zhenhai in August as part of its drive to protect itself against supply disruptions. About 3 million barrels of Russian crude have been placed there.

Having secured the first lease, Sinopec booked another nearly 4 million barrels of crude from unknown countries to be poured into the tanks by mid-December, filling them to about one-fifth of their capacity, sources told Reuters last week.

Some analysts say China's stockpiling is helping provide a floor to oil prices, trading in a month-long - a barrel range after a 23 percent fall from a July record above .

But Mandil said that the demand from filling the reserve was not so high that it would impact prices.

With the stockbuild underway, traders are anxious for word on how Beijing will operate the reserves, which are enough to meet about 11 days of its imports. Another two facilities are planned for completion before mid-2007 as Beijing aims for more than 100 million barrels in tank by 2008.

As well as strategic reserves, Mandil said he was optimistic China will push ahead with greater energy efficiency -- a key plank of the IEA's World Energy Outlook recommendations this week -- since he said Beijing realised it was cost-effective.

REUTERS SBA GC2032