China Offered Millions of Barrels From Oil Reserve to Cool Rally

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(Bloomberg) — China supplied oil from its strategic state-run inventories to the country’s largest refiners earlier this month in a bid to quell a price rally.

The Strategic Petroleum Reserve supplied about 3 million tons, or 22 million barrels, to the processors, according to people familiar with the situation. The move was intended to cool prices and control a growing threat of inflation, said the people, who asked not to be named discussing a confidential matter. The operation might weaken Chinese demand for imported crude.

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The release was earlier reported by the Energy Intelligence. No one answered out-of-hours calls to the press offices at the nation’s National Energy Administration, which oversees the oil reserves, and its supervisor the National Development and Reform Commission.

The release underlines how seriously Beijing sees rising raw material costs, and an accompanying risk of broader inflation in living costs. But it could provide a headwind for oil prices that were rattled by a resurgent virus that has further shaken investor confidence after OPEC+ agreed to boost crude supply. Brent oil reached a near three-year high of $77.84 a barrel earlier this month, but has since slumped by almost 8%.

China’s central government has tried to direct commodity prices with a spate of measures including clamping down on speculators and releasing state stockpiles of metals and coals. It has also started a campaign to review and regulate operations at the country’s private refiners, a move that curbed oil imports at one stage in the first half of the year.

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The various commodity sales from reserves have had a mixed impact on prices. Since announcing that it will sell stockpiled base metals including copper, aluminum and zinc on June 16, domestic futures prices have either remained flat or risen slightly. In grains, since China offered stockpiled corn on July 9, prices have dropped by about 1.5%.

The department in charge of non-oil commodity stockpiles said Wednesday that it will increase the amount of base metals it will sell by as much as 80% compared with its previous auction, indicating it hasn’t given up its effort to stop the rally. Goldman Sachs Group Inc. and Citigroup Inc. say moves by China to control prices will likely fail.

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