China’s National Food and Strategic Reserves Administration last week said that it would conduct the first public auction to sell crude oil from the strategic petroleum reserves to the domestic market to ease high feedstock costs faced by local refiners. The NFSRA said the release would stabilise domestic oil supply and demand and protect the country’s energy security. It also stated that the sales would be in phases and targeted integrated refining and chemical plants.
However, the agency did not disclose the volume of crude that it would sell or when. Some analysts believe the release does not reflect actual supply shortages among refiners. They said that refiners did not really see tight supplies in the global oil market, and some of them even anticipated prices to decline below $60 per barrel. Instead, China wants to demonstrate that it possesses the tools to prevent prices from exceeding levels it deems too high. It also acts as a message to producers to keep supply high enough to avoid a further price rally.
Brent futures have climbed 41.5% since the end of 2020, to around $73.30 per barrel on Monday. The gains may have prompted Beijing to release its crude reserves. India, another big oil importer, has also enacted a rule allowing more active trading of oil from its strategic reserves. Analysts said releasing reserves indicated that China and India believed the oil price had risen far enough. However, they also warned that such a move could trigger a retaliation from producers.
