China Tests Influence Of Oil, Fights Inflation With First Oil Reserves Auction

SINGAPORE, Sept. 15 (Reuters) – China’s first auction of crude oil reserves could have a disproportionate impact on market sentiment, signaling that the major oil importer remains committed to controlling inflation by controlling oil prices. commodities, analysts and business executives said.

Initial sales of its Strategic Oil Reserves (SPRs) will be low – 7.38 million barrels, or about half a day’s use in China – barely registering in a global market that consumes nearly 100 million barrels each. day.

Nonetheless, it demonstrates that Beijing is ready to sell stocks that were previously considered banned and that it intends to become more active in domestic oil markets whenever high prices threaten to undermine the economy.

“With the kind of market power that China has, the publication has enormous symbolic significance as the first public sale of SPR, because just three years ago, the debate was still about how the SPR works. China and how it will be regulated, ”said Michal Meidan, director for China at the Oxford Institute of Energy Studies.

China, the world’s second-largest oil refiner and a heavy consumer of most other commodities, has also made sales from strategic reserves of metals, coal and corn to help control factory inflation that has reached a 13-year high in August. Read more

“I really see it as a test, both in terms of the internal mechanism and the impact on the market… to contain inflation and… learn to use SPR like the US does,” Meidan said.

Other market watchers have said the timing of the sale – just as global oil prices hover around $ 75 a barrel, up about 40% this year – indicates that Beijing is hoping to lower oil prices.

“The Chinese have the most power to do it now because they are the largest importer of crude oil,” said Tony Nunan, senior risk manager at Mitsubishi Corp.

“It’s a new era. It seems they are openly announcing this (sale) because of the fear of inflation.”

ROAD TEST

Next week’s auction of reserve tanks in Dalian, northeast China, will mark the first public sale of the country’s strategic oil reserves since it began pumping oil from reservoirs in reserve 15 years ago.

Managed by the National Petroleum Reserve Office, the sale will be made through a newly created electronic system called the National Oil Reserve Center Platform, which has a website detailing trading rules and risk settings for participants.

The government said it would release its reserves in phases and regularly rotate its oil reserves. The National Administration of Food and Strategic Reserves, which oversees the petroleum reserves office, did not respond to a request for details.

China has kept information on the size of its reserves closely, which has led to a wide range of estimates of the quantity of its reserve reservoirs, from 220 million to 384 million barrels, or between 16 and 27 days. refinery flow rate.

The lack of details has left traders and analysts guessing how many more releases are likely, and has led to speculation that between 20 million and 50 million barrels could be released by mid-2022.

“These sales came so suddenly, taken by surprise,” said a trader at a Chinese refiner.

“I also wonder how many lots there will be.”

Reporting by Chen Aizhu and Florence Tan; Additional reporting by Muyu Xu in Beijing; Editing by Tom Hogue

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