China sells national oil reserves to control prices

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China Update

China announced that it would sell the oil in its national oil reserve for the first time because Beijing stepped up efforts to curb inflationary pressures brought about by the commodity market.

National Grain and Material Reserve Bureau It said on Thursday that it will distribute bulk-sold oil to domestic oil refining and chemical companies to “relieve the pressure of rising raw material prices.”

The national reserve crude oil is put on the market through public auction, which will better stabilize domestic market supply and demand and effectively guarantee national energy security.

Although the United States and other large oil importing countries regularly use their own reserves during supply interruptions or to meet budgetary needs, this is the first time that China has publicly announced its intention to use its stocks.

China has surpassed the United States as the world’s largest crude oil importer in the past ten years. It has rarely talked publicly about its huge strategic oil reserve, and the reserve management department has not specified how much oil it will sell.

Amrita Sen of Energy Aspects, a consulting firm, said that China has quietly sold oil reserves in the past, but now it seems that it wants to rotate its inventory more frequently and more openly in an attempt to control inflation. “This is not new, but the announcement is new. I think this is an attempt by them to lower domestic prices,” she said.

But this move may also be seen as a warning to OPEC+, which has been criticized for allowing oil prices to rise too quickly as the world economy tries to recover from the coronavirus pandemic.

OPEC and its allies chose to stick to the current timetable last week to increase production cuts at the beginning of the pandemic and resist US calls for a faster recovery of production. The price of the global benchmark Brent crude oil rose by more than 40% in 2021, to around US$72 per barrel.

The U.S. Department of Energy said last month that it would sell up to 20 million barrels of oil after Hurricane Ida hit oil production in the Gulf of Mexico and interrupted refineries.

Energy Aspects’ Sen predicts that in the future, each Chinese auction will produce up to 10 to 15 million barrels of crude oil, adding that these releases are “in line with other raw material trends”.

“The Chinese government has always been very worried about inflation [so] They are doing this across the board. They have been releasing strategic inventories of almost all raw materials. “

Since the beginning of this year, China has stepped up its efforts to control commodity prices, which have pushed up costs in everything from manufacturing to electricity to food.

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In the past two months, the National Grain and Strategic Reserve Administration has held at least three similar auctions to auction national reserves of several metals including copper, zinc and aluminum.

Before the auction of 30,000 tons of copper, 90,000 tons of aluminum and 50,000 tons of zinc in July, Xu GaopengAn official from the reserve management department told the state media that China has the ability to use its abundant reserves to cool the market.

The international oil benchmark Brent crude hit a three-year high of more than US$77 per barrel in July, but has since slowed slightly as the spread of the Delta variant of the coronavirus has raised concerns about fuel demand.

The trading price of Brent crude oil on Thursday was close to US$73 per barrel. It rose slightly on the day, but weakened slightly after China’s announcement.

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