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Oil Prices Soar As Beijing Orders Energy Suppliers To Stock Up For Winter

  • Bloomberg: government officials "ordered the country’s top state-owned energy companies to secure supplies for this winter at all costs."
  • Global supply chain bottlenecks are about to get even worse as China is set to bid more aggressively for what little coal and LNG supply there is

China is officially panicking.

Now that the global energy crisis has slammed China's economy, leading to the first contractionary PMI since March 2020 as a result of widespread shutdowns of factory and manufacturing, not to mention hundreds of millions of Chinese residents suffering from periodic blackouts, Bloomberg reports that China’s central government officials "ordered the country’s top state-owned energy companies to secure supplies for this winter at all costs."

Translation: Beijing is no longer willing to risk social anger and going forward China will be subsidizing coal and nat gas, which will lead to even higher prices, which will lead to even higher prices for other "substitute" commodities such as oil, which is why oil surged on the news.

The news follows a report on Wednesday that China will allow soaring coal prices to be passed on to factories in electricity prices. But prepare for a surge in PPI, which will likely not be allowed to be passed on to CPI due to ‘common prosperity’. Which logically means margin collapse, and shutting down – so even more structural shortages. Unless we get state subsidies of some sort, or differential pricing for the foreign and domestic market. There used to be a name for that kind of economy. Wall Street used to pretend it didn’t like it.

According to Bloomberg, the order came directly from Vice Premier Han Zheng, who supervises the nation’s energy sector and industrial production, and was delivered during an emergency meeting earlier this week with officials from Beijing’s state-owned assets regulator and economic planning agency. The bottom line, according to Bloomberg sources, is that "blackouts won’t be tolerated."

Which simply means that the supply chain bottlenecks are about to get even worse since China will muscle in even more aggressively for what little coal and LNG supply there is. It is unclear if it also means that Beijing is about to give up on its laughable pursuit of decarbonization.

The emergency meeting underscores the critical situation in China. A severe energy shortage crisis has gripped the country, and several regions have had to curtail power to the industrial sector, and some residential areas have even faced sudden blackouts.

In a sign of how worried Chinese officials are, Premier Li Keqiang vowed overnight that every effort will be taken to maintain economic growth. China will ensure the needs of basic livelihoods are met and will keep industrial and supply chains stable, Li was cited as saying by China National radio during a meeting with foreign diplomats Thursday.

The bottom line is that China finally hit the limit of how much slowdown it is willing to tolerate and Beijing is about to unleash a monetary and fiscal stimulus tsunami. It also means that commodity prices are about to be absolutely insane this winter.

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Leave a comment
  • Mamdouh Salameh on September 30 2021 said:
    China isn’t panicking but it is ready put its hand in its pocket to ensure continued economic growth and enough energy supplies to satisfy the demand of the country particularly in the coming winter, hence the order to the country’s top state-owned energy companies to secure supplies for this winter at all costs with blackouts not tolerated.

    This means that China might have to relax its plans to achieve net-zero emissions by 2060. It also means further rising of prices of fossil fuels with Brent crude surging probably to $85 before the end of the year and hitting $100 in 2022.

    For China, energy security is upper most in its strategic thinking for which it is prepared to take the most drastic decisions.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Renton Farten on October 04 2021 said:
    Black gold is still the principal energy source for ever.. It’s great to see Asia, Middle East and South America investing in the future of oil
  • George Doolittle on October 05 2021 said:
    "do whatever it takes."

    Draghi said the same thing about keeping ahem "free money" ahem for Europe.

    All of Asia is just days away from being physically out of fuel...with Europe and Putin's Russia in horrific crisis as well.

    Long $tsla Tesla Motors
    Strong buy

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