China announced that it will make the first sale of oil from its strategic reserves on September 24, which is an unprecedented intervention to lower prices.
- The first auction will be for nearly 7.38 barrels of crude, according to a statement by the National Food and Strategic Reserves Administration.
- Brent oil dropped immediately after the initial announcement, before recovering to trade close to $74 a barrel. The Chinese agency stated that it would use its massive oil reserves to “ease the pressure of rising material prices.”
- China is facing the surging cost of commodities for crude as well as coal and natural gas, while inflation is rapidly increasing.
- Companies taking part in the auction need to comply with national refinery industry policy and have adequate import quota. Buyers should have a good credit record and crude bought should be for its own use.
China has held up a 220 million barrel reserve of the commodity over the last 10 years. The Chinese buffer differs from strategic petroleum reserves, SPR, held in the U.S. and Europe, which are only tapped during supply outages and wars.
BR1! up +1.30%, CNY USD up +0.11%Source: Bloomberg.
