The State Office of Cereal and Material Reserves said Thursday afternoon that it will release oil from its national batch reserve. It intends to sell the oil to refining and petrochemical companies.
“Putting domestic reserve crude on the market through open auction sales will better stabilize domestic market supply and demand and effectively ensure national energy security,” the firm said in a statement, adding that the release of oil will ease the pressure of rising commodity prices for producing companies. “
Oil prices fell to their lowest level in two weeks on Thursday after China’s announcement. Brent, the world leader, fell 1.6%, while US oil fell 1.7%. They recovered slightly, with a recent operation of $ 71.85 and $ 68.45 per barrel, respectively.
The government did not say how much oil it would end up selling, but barrel hoarding is critical for China. The country is heavily dependent on foreign oil to fuel its economy and has been working for years to bolster its oil reserves emergency reserve. China does not publish much data on its oil reserves, but said in 2017 that it had established nine major reserve bases across the country, with a combined capacity of 37.7 million tonnes.
The country has also said it wanted to have 85 million tons of oil in its emergency reserve by the end of 2020, which is almost the amount the United States maintains in its Strategic Oil Reserve, the security supply of oil largest in the world.
But the Chinese economy is struggling with several headaches right now. Inflation is soaring and the country’s producer price index hit a 13-year high last month, driven by rising commodity prices. Energy costs are also rising and demand is so high that some provinces have even experienced energy shortages.
Despite Beijing’s efforts to contain the high costs, factory inflation remains high. The government has warned that high costs of raw materials, such as energy and petrochemicals, will exacerbate the growth and employment challenges facing manufacturers, especially small and medium-sized enterprises.
Rising prices also complicate any effort the government may consider to avoid an economic slowdown with more fiscal and monetary support. Expansive policies aimed at boosting growth, such as rising public spending or expanding the money supply, will only further increase inflation.
The Chinese economy has already been shaken by other issues, including an outbreak of the Delta coronavirus variant and the shipping crisis.
An official survey of manufacturing activity last month indicated the lowest growth rate since the start of the pandemic, while a private survey showed the first contraction since April 2020. Service industries they also suffered, and the official non-manufacturing survey recorded the first contraction since February 2020.
