China releases oil reserves in an unprecedented move to calm prices

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China offered millions of barrels of oil from its strategic reserves this month in an unprecedented move to try to cool inflation caused by the rising costs of everything from food to fuel.

Informed sources, who requested anonymity due to the sensitivity of the information, said that the state will supply the main refineries with about 3 million tons - or 22 million barrels -. The decision is the latest in a series of measures taken by the world's second-largest economy to curb the rising costs of the post-pandemic recovery.

and overtake standard Brent crudeThe global market had reached $75 a barrel in the weeks leading up to the move, a level not seen since 2018, when a public dispute among OPEC+ members delayed a crucial decision to increase production. Although the alliance eventually agreed on a deal to boost supplies to the under-supplied market due to reviving demand, oil prices are still about 40% higher than they were at the start of the year.

The release of reserves may affect China's consumption of imported crude, yet the timing details remain unclear, and the country's total demand for foreign oil depends on major refineries after private processors received a slap in the face of increased government scrutiny that included the application of tariffs, which eroded profitability. .

The news was first reported by "Energy Intelligence", and no one from the press office of the Chinese National Administration of Food and Strategic Reserves answered calls asking for comment, and there was also no response to the fax sent to the National Development and Reform Commission, and the National Energy Administration was previously responsible for managing reserves.

mixed reaction

Since early 2021, Beijing has stepped up efforts to rein in high prices that crept into everything from the cost of energy to daily meals, soaring raw material costs due to a strong economic recovery from China to the United States and Europe, as well as virus-related problems in employment and the supply chain. Beijing has also hunted down speculators, freeing metals and coal from its stocks in an attempt to prevent high prices from hampering growth.

However, the market received these sales with mixed responses, since the announcement of the sale of base metal stocks such as copperAndaluminumZinc On June 16, domestic futures prices almost did not move or rise slightly. For cereals, prices fell 1.5% after China provided some corn stocks on July 9th.

The administration responsible for stocks of non-oil goods said on Wednesday that it will increase the quantities of base metals that it will sell by up to 80% compared to the previous auction, indicating that it has not given up its efforts to stop the rise, and "Goldman Sachs" and "Citigroup" likely that China's moves to control prices fail.

petroleum refineries

Brent crude has lost more than 2% since the start of the week when speculation about the release of reserves began, and Friday's weekly losses reached 2.6%. Sales of China's state oil reserves add to other concerns stemming from a delta spread and a stronger dollar.

For major Chinese refiners to which the barrels have been offered, China's move will help the utilities avoid crude shortages amid the ongoing depletion of their own stocks since the fourth quarter of 2020, Energy Aspects analysts Yuntao Liu and Amrita Sen wrote in a note dated July 21.

Moreover, they added that access to government oil reserves will also support refinery operating rates as factories return from maintenance work, and Energy Aspects expects Chinese crude oil processing rates to increase by 430,000 barrels per day during the third quarter compared to the previous three months, an increase From the previous forecast of 210 thousand barrels per day.

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