US, China Strategic Oil Reserve Refill May Put Floor Under Crude Prices

The US and China are moving to rebuild their strategic petroleum reserves, a step that could help limit declines in global oil prices.

Reuters reported on July 10 that major countries including the US and China plan to buy crude over the next several years to replenish stockpiles depleted by the Middle East war. Markets view the government purchases as a source of new oil demand.

Kpler, a commodities analytics firm, estimates that additional demand from reserve replenishment could reach as much as 664,000 barrels a day in the third quarter of 2027. That would absorb part of the supply increase from OPEC+ and help ease downward pressure on global oil prices.

The US may be the first to act. The Strategic Petroleum Reserve stood at 319.5 million barrels as of July 3, the lowest level since 1983, according to the Department of Energy. Energy Secretary Chris Wright has also said the administration is considering a long-term plan to raise inventories to more than 500 million barrels.

China could also step up purchases for its strategic reserves if oil prices fall. Societe Generale said China has tended to move more aggressively to secure strategic crude supplies when Brent crude trades below its 12-month moving average.

Markets expect reserve replenishment by major countries to emerge as a new source of oil demand from next year. Still, the scale and pace of purchases will depend on global oil prices and each country's fiscal conditions.