Chinese buyers are being allowed to go outside of the traditional business of government-backed energy firms to purchase emergency oil reserves, the Wall Street Journal reported Friday. State-owned oil companies are no longer allowed to buy such supplies. China’s major utilities have begun purchasing oil.
The move is a recognition that China has reached a balance point in oil dependence that could mean either a crisis – i.e. how much petroleum will it need to import in order to avoid oil prices that could affect Chinese consumers – or a smaller, slower-growing economy.
In fact, Chinese oil production is slipping, and according to a report by IHS Markit, China is producing as much crude oil as the U.S. now does. So the Journal says China could “become the first country to deliberately consume less oil.” The reduction in production could extend through 2025.
While Chinese buyers are being allowed to go outside of the traditional business of government-backed energy firms, there is some other resistance. There is concern that the Chinese government will interfere to ensure that the foreign companies do not use the offshore reserves to export Chinese oil products, something the U.S. government is investigating and has warned to avoid.
In addition, while the reserve is not publically funded, at least 30 percent of the oil sold to commercial buyers will need to be publicly listed. For these reasons and others, China appears to be going for a more open process and hopefully avoiding a similar oil crisis to the one which would crush any growth the global economy might have witnessed at the end of 2018.