'Water Price Emergency' in China, First Public Release of Strategic Petroleum Reserves

August PPI Increase Rate Highest in 13 Years... Unusual Release of Data Reflects Strong Commitment to Price Stability

[Photo by Reuters]

[Asia Economy Reporter Park Byung-hee] The Chinese government announced on the 9th (local time) that it released strategic petroleum reserves to stabilize prices. Bloomberg News explained that this is the first time China has openly stated its price stabilization goal while releasing strategic reserves, interpreting it as an unprecedented market intervention by the Chinese government.

The National Food and Strategic Reserves Administration (NFSRA) of China issued a statement on the same day announcing the release of strategic petroleum reserves to curb the upward pressure on raw material prices. This came right after the National Bureau of Statistics of China announced that the Producer Price Index (PPI) for August rose 9.5% year-on-year, the highest in 13 years.

China has previously released some raw material reserves such as copper, aluminum, and grains to stabilize prices. However, Bloomberg explained that while the release of reserves was previously inferred through intermediaries and market price trends, it is unusual for the government to publicly disclose the release of reserves directly as it did this time. Furthermore, Bloomberg interpreted this as a strong intention to control prices with the purpose of maximizing the impact on the market.

Bloomberg also explained that although the US and Europe also maintain strategic petroleum reserves, their operational methods differ from China’s. The US and Europe release reserves only in cases of war or complete disruption of crude oil supply, whereas China has shown a willingness to use reserves to influence the market.

Whether the release of reserves will contribute to price stabilization as much as China expects remains uncertain. Consulting firm SIA Energy forecasted that China’s oil demand in the fourth quarter of this year will be 13% higher than in the fourth quarter of 2019, before the COVID-19 pandemic. Given the expected surge in demand, it is uncertain whether supply expansion can ensure long-term price stability.

Amrita Sen, co-founder of another consulting firm Energy Aspects, said that China released 20 to 30 million barrels of reserves over the past summer and predicted that the remaining release volume for this year will not exceed 10 to 15 million barrels.

Energy Aspects estimated that China has stockpiled more than 220 million barrels of crude oil over the past decade.

Following the news of China’s reserve release, the October contract for West Texas Intermediate (WTI) crude oil futures on the New York Mercantile Exchange (NYMEX) closed at $68.14 per barrel, down $1.16 (1.7%) from the previous trading day.

This content was produced with the assistance of AI translation services.