A strong message is being sent to major global oil capitals: it’s time to cool down the markets.
By urging the Organization of Petroleum Exporting Countries and their allies in OPEC+ to open taps – and endeavouring to impact the markets by selling crude oil from strategic reserves – the world’s major oil consumers are clearly saying they want action.
The flurry of activity began with United States President Joe Biden urging OPEC+ to open taps and stabilize the markets. When OPEC+ paid little attention, other steps were taken to emphasize the message.
According to reports, China is set to offer 7.38 million barrels of crude on Sept. 24. By opting to sell crude publicly from its Strategic Petroleum Reserve for the first time to local refiners, the world’s largest crude importer has sent a clear message to crude producers that markets need to be stabilized.
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This wasn’t business as usual. Bloomberg called this Chinese intervention unprecedented. Clyde Russell of Reuters said the oil sale was all about the message, not so much the oil itself.
This isn’t the first time the Chinese have unloaded inventory from strategic reserves, but it is the first time China made public any such sale. “This is not new but the announcement is new, and I think it’s an attempt on their part to temper domestic prices,” Energy Aspects’ Amrita Sen told the Financial Times.
What made China take such a public action?
After all, such reserves are finite and the practice can’t continue for long. The reason for the move, as suggested by Irina Slav at OilPrice.com, was the rising price of oil. At over US$70 per barrel, crude appears to have become too expensive for the Chinese, especially after producer price inflation in the country hit a 13-year high last month, Slav said.
Citing China’s National Food and Strategic Reserves administration, the report underlined that the oil sales would “better stabilize domestic market supply and demand, and effectively guarantee the country’s energy security.”
Despite their differences on major global strategic issues, China isn’t alone in the efforts to cool down oil prices. There seems to be a convergence of interest with the United States on the issue.
After failing to persuade OPEC+ to pump more oil in the weeks before Hurricane Ida, the Chinese announcement to sell from its reserves came at almost the same time that Biden was considering releasing crude from American strategic reserves.
The U.S. Department of Energy has now announced plans to sell crude oil from its Strategic Petroleum Reserve to eight companies, including Exxon, Chevron and Valero. The announcement came as global market prices for the U.S. benchmark West Texas Intermediate shot past US$70 a barrel.
In the aftermath of Hurricane Ida and the storm’s damage to refining infrastructure in the country, the U.S. also approved extending a short-term loan of 1.5 million barrels of crude from the reserve to ExxonMobil’s 500,000-barrels-a-day refinery in Baton Rouge, La.
Global crude markets are tightening. And if the forecast of consumption growth made by OPEC earlier this month turns out to be correct, oil prices could go much higher. Releasing crude from reserves isn’t the answer to the fundamental issue of supply and demand faced by the markets.
The emerging-market model is making the major global consumers itchy. The almost concurrent announcements of reserve crude sales from otherwise strategic adversaries China and the United States are more subtle messages to producers to act now.
Is OPEC+ paying heed?
Time will tell.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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