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China manages to lower the price of oil by releasing part of its strategic reserves

China made an unprecedented intervention in the world oil market. It put crude oil from its strategic reserve on the market for the first time with the explicit objective of drive oil prices down.

The announcement comes amid rising energy costs in China, not just for oil but also coal and natural gas, and electricity shortages in some provinces that have forced some factories to cut production.

In its statement, the National Administration of Food and Strategic Reserves said that the country had drawn on its gigantic oil reserves to “relieve pressure from rising prices of raw materials “.

Furthermore, China considers that a “normalized” rotation of crude in state reserves is “an important way for reserves to play their role in balancing the market”, indicating that you can keep releasing barrels.

The agency said that putting crude from the national reserve on the market through open auctions would help “better stabilize supply and demand in the domestic market.”

“The exploitation of crude oil reserves by China is great news and should bring great relief to Chinese refineries and chemical companies,” Edward Moya, senior market analyst at Oanda, told Reuters.

Energy crisis background

Oil Well

And it is that China is facing an energy crisis with rising prices, not only for oil, but also for coal and natural gas. This causing an increase in the cost of electricity consumption in homes and companies. In addition, in some provinces there are blackouts due to lack of supply that is affecting the industrial sector.

And this, in turn, has an influence on their exports. If to this we add the microchip crisisIt also affects European industry, which is highly dependent on China for the components that make up a final product.

The United States has also reached into its strategic reserves. US crude reserves fell by 1.5 million barrels in the week to September 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 rebound effect and would push prices up again in order to replenish strategic reserves. In any case, neither China nor the United States seem to want the barrel price to go further from the 70s $ 75.

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Lenny Li

I started to play with tech since middle school. Smart phones, laptops and gadgets are all about my life. Besides, I am also a big fan of Star War. May the force be with you!

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