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Charles Kennedy

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China Releases Fuel From Reserve To Stop Price Spike

  • China has released gasoline and diesel from its fuel reserve
  • Like all energy news from China, the reports of the reserve release immediately affected oil prices, pushing them lower.

China has released gasoline and diesel from its fuel reserve to arrest a price climb that has increased volatility in some parts of the country, Reuters has reported, citing the Chinese National Food and Strategic Reserve Administration.

"Diesel and gasoline rotated out of the reserves will be used to increase market resources and reduce supply shortages, in order to stabilize supply and prices," Bloomberg quoted the administration as saying.

"(Oil) product rotation should be more common than crude (oil releases from reserves)," said an SIA Energy analyst, as quoted by CNA. However, the analyst also noted that such reserve releases are generally not officially announced. Sunday's announcement by the Chinese National Food and Strategic Reserve Administration may have been the first ever.

Like many other countries, China has been in the grips of an energy crunch for the past two months as the pick-up in economic activity coincided with tight fossil fuel supply. This prompted Beijing to hold its first-ever crude oil auction for oil from its strategic petroleum reserve in September. The aim of the auction, which was for 7.4 million barrels of crude, was to "alleviate raw material price pressures."

The news fuelled the international oil price rally that saw Brent hit $86 per barrel in October. In a bid to cope with the crunch, the Chinese authorities also ordered coal mines to boost production and production capacity and upped natural gas imports to ensure winter supplies after experiencing blackouts and factory shutdowns prompted by the shortage of fossil fuels.

Like all energy news from China, the reports of the reserve release immediately affected oil prices, pushing them lower.

"Words are bigger than actions, (China) learned it from OPEC+," SIA Energy's Sengyick Tee told CNA, referring to the effect any news from OPEC has on international prices.

By Charles Kennedy for Oilprice.com

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