Oxford Energy Podcast – China’s SPR release: a test of mechanisms rather than a show of market might

China’s announcement that it will release oil from its Strategic Petroleum Reserve (SPR) is a hugely significant policy initiative, but it is first and foremost a test of mechanisms rather than an attempt to impact oil markets and flows. In this Podcast, David Ledesma talks to Michal Meidan about the SPR oil release, the drivers and likely implications. Given the small size of the release and the structure of the China domestic product pricing mechanism, this draw down is unlikely to significantly impact on producer price inflation. This, the first auction, should therefore be seen as a test of the newly created SPR mechanism and, if deemed a success by the government, it may lead to further stock draw down if the China market requires. But even these subsequent auctions are unlikely to alter China’s import needs as storage levels will still need to be replenished at some point. Any short-term reduction in crude buying will be related to low refining margins and a weak demand outlook rather than the SPR release process.

By: OIES