China intervenes in world oil market prices:
China’s unprecedented intervention in the world oil market: sale of strategic reserves has the explicit aim of lowering prices
China, the world’s largest oil importer, has accumulated reserves of 220 million barrels of the commodity over the last decade, according to Energy Aspects, has made an unprecedented intervention in the oil market, releasing for the first time part of its strategic reserve , with the explicit aim of lowering prices. China’s move joins the US public call for OPEC to increase production. The two biggest oil consumers on the planet are unwilling to tolerate prices much higher than $70 a barrel. Despite efforts to maintain control over prices, they are recovering from losses.
China signals it is willing to use reserves to try to influence the market
China starts a war against inflation and rising energy prices that affects every economy on the planet. China announced through the National Food and Strategic Reserves Administration that it had taken advantage of its gigantic oil reserves to “relieve the pressure of rising commodity prices.”
“At first glance, it’s a pretty clear statement of intent to use SPR to drive down oil prices for domestic refiners,” said Bob McNally, a former senior policy adviser to the White House who now runs Rapidan Energy Group, a consultancy in Washington.
The Chinese agency explained that it is managing a “normalized” rotation of state reserves to fulfill “its role in market equilibrium”, which presumably could continue to free barrels. National oil reserves were released in the domestic market for “better stabilization of supply and demand”.
The difficulties with oil
But China’s economy is dealing with several headaches right now. Inflation is rising 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 suffered power shortages.
Despite Beijing’s efforts to contain rising costs, factory inflation remains high. The Chinese government has warned that the high costs of raw materials, such as energy and petrochemicals, will exacerbate the growth and employment challenges facing manufacturers, especially small and medium-sized companies.
The United States has also reached its strategic reserves
US crude oil reserves dropped 1.5 million barrels in the week to Sept. 3, according to government data, far less than the 4.6 million barrel reduction forecast by analysts.
Even so, there is a risk that reserves will fall too low, which would have a recovery effect and raise prices to replenish strategic reserves. Neither China nor the United States seem to want the price per barrel to exceed $70 or $75.