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Crude Takes a Hit as China Releases Oil From its National Reserve

September 10, 2021

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 soaring 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% that was widely speculated 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 oversupply concerns as major coal regions started fresh rounds of safety checks.

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. 

Some draw attention that China’s recent oil demand is 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.

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