Just hours after China revealed yet another high in producer price inflation, Beijing has taken the unprecedented step of releasing oil from its national crude reserve to “alleviate raw material price pressures.”
Overnight, China reported that factory gate inflation hit a 13-year high in August – even as CPI came in slightly below expectations at 0.8% vs Exp. driven by roaring raw materials prices despite Beijing’s attempts to cool them, putting more pressure on manufacturers in the world’s second-largest economy. The producer price index rose 9.5% from a year earlier in August, the National Bureau of Statistics said on Thursday, faster than the 9.0% increase tipped in a Reuters poll and the 9.0% reported in July. That was the fastest pace since August 2008.
China’s economy has recovered strongly from last year’s coronavirus slump but has been losing steam recently due to domestic COVID-19 outbreaks, high raw material prices, tighter property curbs and a campaign to reduce carbon emissions.
Meanwhile, commodity prices have been on a tear in recent months, hurting the bottom lines of many mid- and downstream factories, resulting in earnings at China’s industrial firms that have slowed for five straight months. China’s coal prices soared to a record high on Tuesday over supply concerns as major coal regions started fresh rounds of safety checks.
So in an attempt to “curb pressure of rising raw material prices” moments ago China announced that it would release oil from its national reserve by rotation and batches for the first time. According to Bloomberg, the release is primarily targeting domestic refining and chemical integration firms.
It is worth noting that on July 22, @cangsizhi reported on July 22 that China offered millions of barrels of oil from its SPR, so today’s statement appears a confirmation of that move weeks ago, rather than a new release, and obviously, an attempt to talk down the oil market as BBG’s Javier Blas notes.
The release comes amid a noted pick-up in Chinese oil buying recently, where Chinese imports of crude oil increased 8% in August to 10.53mln BPD, the most since March. Citi’s analysts noted, “This was likely only the first step higher after imports lagged below the 10.48 mmbpd 12-month average over the past four months.”
As Newsquawk notes, some draw attention that China’s recent oil demand mainly an opportunistic move to seize the lower prices and to fill inventories, rather than a reflection of imminent demand, something which China had been engaging in prior to the recent rally.
In kneejerk reaction, both WTI and Brent slumped, with WTI falling from USD 69.71/bbl to 69.17/bbl, while Brent fell from USD 73.05 to 72.50/bbl.