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 shift that could help limit further declines in global oil prices.

Reuters reported on July 10 that major economies including the US and China plan to buy crude gradually over the next several years to replenish inventories depleted by the Middle East war. Those government purchases are seen as creating a new source of demand in the oil market.

Kpler estimates that additional demand from strategic reserve refilling could reach as much as 664,000 barrels a day in the third quarter of 2027. That would be enough to absorb part of the additional supply from OPEC+ and ease downward pressure on crude prices.

The US is set to move first. Department of Energy data showed the Strategic Petroleum Reserve stood at 319.5 million barrels as of July 3, the lowest level since 1983. Energy Secretary Chris Wright has also said the administration is considering a longer-term plan to raise stockpiles to more than 500 million barrels.

China could also increase purchases for its strategic reserves if oil prices decline. Societe Generale said China has tended to step up strategic petroleum reserve buying when Brent crude trades below its 12-month moving average.

Market participants expect reserve rebuilding by major economies to become a new source of oil demand from next year. Still, the actual scale and pace of purchases will depend on oil prices and each country's fiscal position.