China Says Crude Release From Strategic Reserves “In The Works”
China is set to release crude oil reserves just days after President Biden urged top oil-consuming nations, including China, India, and Japan, according to Reuters. The coordinated effort to release crude stockpiles could offer temporary relief by lowering crude prices amid a global energy crisis ahead of the Northern Hemisphere winter.
The rare request from the U.S. followed a virtual meeting between President Joe Biden and President Xi Jinping on Monday. The two most influential leaders in the world discussed releasing oil from strategic reserves in tandem to quell soaring energy prices.
China imports about ten million barrels per day on average and suffers from a domestic energy shortage that has caused widespread power rationing.
“The bureau is carrying out crude oil release work at the moment,” a spokeswoman at the National Food and Strategic Reserves Administration told Reuters by phone.
There was no word if authorities were releasing crude from stockpiles in response this Biden’s request or whether this was a pre-planned release.
Beijing tapped stockpiles in September. It offered about 7.4 million barrels or the equivalent to almost a day’s worth of imports.
“We will release more details on the volume of oil and date of its sale on our website in due time, just like we did in the first public auction,” said the reserve bureau’s spokeswoman.
Around the world, consumers are well aware of two things: filling up their car (or grocery shopping) has never cost more money, and governments are scrambling to do something about it, or at least provide the optics they’re proactively fighting energy inflation.
This year alone, crude has soared 50%. Rising energy prices have been a significant driver in accelerating inflation as the world recovers from the virus pandemic downturn in 2020. For instance, gasoline prices are the highest ever in California. They are near records across the U.S.
As we have detailed in-depth over the past several days (here, here, and here), the Biden administration is utterly desperate to stop retail gasoline prices soaring as the president’s approval rating plunges ever lower.
The decision to ask China to join a coordinated global strategic reserve release seemed strange at the time of reporting… but now we may know why Biden was forced to do it.
It turns out that the U.S. strategic reserves have seen drawdowns for ten straight weeks, during which more than fifteen million barrels of crude have been withdrawn. At 606 million barrels, the U.S. strategic reserve is at its lowest since 2003, and it seems more declines are ahead.
So why would China’ help’ the U.S.?
The big question is, what did President Biden offer in return for this ‘favor’ from China?
Neither JPM nor Goldman believe a drawdown of the U.S. strategic reserves will be an effective measure to curb prices at the pump (in fact, Goldman predicted that a release would only lead to more pain down the line). Some are starting to expect that a 1970s price control is next on the Biden agenda now that the midterm elections are less than a year away.
Thu, 11/18/2021 – 13:25