China hit the headlines last week with the news that it was going to release some crude oil from its strategic oil reserve and sell it in a move that Bloomberg he called “an unprecedented intervention.”
In fact, this was the first time China announced the sale of oil from its strategic reserve. The size of this reserve is unknown, as the government never publishes this data, but analysts have used satellite images to estimate the amount of oil stored by China.
The reason for the move was, of course, oil prices. According to a Reuters report, at more than $ 70 a barrel, crude oil seems too expensive for Beijing after inflation in production prices hit a 13-year high last month, according to a Reuters report. The same report cited China’s national strategic and food reserves administration, which said oil sales “would better stabilize domestic market supply and demand and effectively ensure the country’s energy security.”
The largest economic greenhouse in the world, which has so far grown at a rate of 8.44 percent, has been struggling for months with high commodity prices, just like the rest of the world. Unlike the rest of the world, he has levers to throw when he decides he has had enough.
Interestingly, this may not be the first time China has sold oil from its strategic reserve. However, this is the first time that Amrita Sen from Energy Aspects has made it public he said the Financial Times.
“This is not new, but the announcement is new and I think it is an attempt on your part to moderate domestic prices,” Sen explained.
The other interesting thing, as noted in the Financial Times report on the news, is that the first such announcement came shortly after the last OPEC + meeting, where the cartel decided to continue adding production to previously agreed rates despite calls … including U.S. President Joe Biden to add more supply to the market to moderate the price hike. As a Reuters columnist, Clyde Russell put it, selling oil was the whole message, not so much the oil itself.
Since the pandemic, the world’s major importers of crude oil appear to have become increasingly sensitive to oil price fluctuations, especially as the oscillation increases. Former Indian Oil Minister Dharmendra Pradhan was especially quick and vocal in his reactions to any OPEC measure aimed at raising prices higher than New Delhi was comfortable with.
India responded to some of these moves by ordering its state refiners to curb purchases from Middle Eastern oil producers. China has also diversified its suppliers. India now sells oil from its strategic reserve. In fact, it announced its sale a few weeks before China. The purpose of the sale reported at the time it was to rent space to refiners, but, intentionally or unintentionally, the sale would have one effects about prices.
“The Chinese government has been extremely concerned about inflation [so] they usually do. They have been releasing strategic stocks of almost all raw materials, ”Sen Energy Aspects said, citing the FT.
Inflation has become a cause for anxiety, not only in China, but few countries have the reserves to release the effects of rising prices. However, it is impossible not to interpret the release of the barrels of the strategic reserve as a warning to OPEC +.
The rise in the price of oil has been one of the main drivers of inflation, although OPEC + has maintained its original plan to add no more than 400,000 bpd to its combined production until it returns to pre- pandemic. Meanwhile, according to the latest OPEC monthly report, demand exceeds pre-pandemic levels as early as next year.
As OPEC + does not respond to calls for more production, prices will have to be higher if this forecast is extended. And this could lead to an even more complicated inflationary situation for large importers, as strategic reserves, however abundant, are still finite.
By Irina Slav for Oilprice.com
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