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IEA seeks China's cooperation on emergency oil stockpile use

China plans to launch a yuan-denominated international benchmark for crude oil futures this year aimed at the Asian market, an industry source said Thursday.

[BEIJING] The International Energy Agency, which advises industrialised nations on energy policy, wants to coordinate with China on using oil stockpiles in the event of a crisis, its newly-appointed chief said in Beijing.

"China is the most important player in the global energy market" and should become "a full participant" in the IEA's work to secure supplies, said Fatih Birol, who became the agency's executive director on Sept 1. While the Paris-based organisation's 29 members can collectively tap emergency oil inventories to cover supply disruptions, China's growing buffer is separate from this system.

IEA members are required to store enough crude and refined oil products to cover 90 days of imports. The stockpiles were last tapped in 2011, when Libyan exports were disrupted by a civil war. China accumulated 49 million barrels of crude in emergency inventories in the first half of this year Citigroup Inc estimates. It may fill two new sites with a combined capacity of 50 million barrels in the second half, according to the IEA.

"Simply having oil reserves is not enough," Mr Birol said at the Chinese Academy of Social Sciences, according to a text of his speech. "If they are to be effective in dealing with a global supply disruption, there needs to be some mechanism for their coordinated release. We must make room for China under the IEA umbrella."

The IEA plans to hold a joint emergency-response exercise next year with China, Mr Birol said in an interview. The agency held its first such event in the country in January.

"Only IEA and China cooperation can have a major effect on the markets," Mr Birol said in the interview.

Oil prices near US$50 a barrel are providing "welcome relief" to consumers and the current global surplus "will take time" to disperse amid surprisingly robust supplies from the US and Iraq, Mr Birol said in the speech.

Investment cuts in oil and gas projects worldwide in 2015 will exceed the US$100 billion the agency had projected earlier this year, Mr Birol said. With spending at least 20 per cent lower than last year, there's a risk that further reductions could trigger "another period of market tightening and higher prices down the road," he predicted.