Oil prices at 6-week low as China prepares to release crude stocks

Oil prices fell to near six-week lows on Thursday as China said it intends to release reserves following a Reuters report that the United States is asking major oil consumers to consider a coordinated stock release to bring down prices.

The US administration's announcement to shock markets by asking China to join in coordinated action for the first time comes as inflationary pressures, partly triggered by soaring energy prices, begin to trigger a political backlash as the world quickly recovers from its worst health crisis in a century.

According to Forex Broker Exness, Brent crude fell 41 cents, or 0.5%, to $79.87 a barrel by 07.12 GMT after falling to $79.60, its lowest level since October 7.

US crude fell 70 cents, or 0.9 per cent, to $77.66 a barrel, having earlier fallen to $77.40, also the lowest since early last month.

Prices hit a seven-year high in October as the market focused on a rapid recovery in demand that came from the lifting of restrictions on slow supply increases by the Organisation of Petroleum Exporting Countries (OPEC) and its allies, called OPEC .

"If the US administration orders the issuance of a Strategic Petroleum Reserve (SPR), this could send a strong political signal," Citigroup analysts said.

"But ... domestic refineries are unlikely to benefit further as the profitability of light fractions seems to have already been exhausted," they added, referring to margins in gasoline and other motor fuels.

US producers have also been reluctant to spend on drilling after being chastised by investors for absorbing debt to pay for new exploration.

The International Energy Agency and OPEC said in recent weeks that more supplies would be available over the next few months. OPEC supports an agreement to increase production by 400,000 bpd each month to avoid flooding the market with supply.

"The release of strategic stocks could lead to a temporary decline in oil prices," , said Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia. "There is a good chance that markets have already priced in such an event."

The United States and allies have coordinated the release of strategic oil stocks before, such as in 2011 during the OPEC member war in Libya.

But the current proposal presents an unprecedented challenge to OPEC, the cartel that has influenced oil prices for more than five decades, because it involves China, the world's biggest oil importer.

China's State Reserve Bureau said it was working to release crude reserves but declined to comment on the US request.

A Japanese industry ministry official said the United States had asked Tokyo to cooperate in combating rising oil prices, but could not confirm whether the request included an agreed release of reserves. By law, Japan cannot use reserves to lower prices, the official said.

A South Korean official confirmed that the United States had asked Seoul to release some oil reserves.

"We are carefully examining the US request, but we are not releasing oil reserves because of rising oil prices. We can release oil reserves in case of supply imbalance, but not in response to rising oil prices," the official said.

In its weekly stockpile report, the US Department of Energy said late Wednesday night that crude inventories fell unexpectedly last week as refineries, with profitable refining rates, increased output ahead of the winter heating season.

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