News Column

China ups oil stockpile

May 26, 2014

BEIJING:



The move comes as tensions mount in the South China Sea, and the West prepares possible oil sanctions against Russia over the crisis in Eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply.The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels a day in April, an all-time high. This is raising eyebrows since China's economy has been slowing for months, with slump conditions in the steel industry and a sharp downturn in new construction. The agency estimates that 1.4 mbpd was funnelled into China's fast-expanding network of storage facilities, deeming it "an unprecedented build". Shipments were heavily concentrated at Chinese ports nearest the new reserve basins at Tianjin and Huangdao. "We think this is a big deal," said one official.China accounts for 40 per cent of all growth in world oil demand, so any serious boost to its strategic reserves tightens the global supply almost instantly and pushes up the spot price.Michael Lewis, head of commodities at Deutsche Bank, said Chinese officials at Beijing'sStrategic Reserve Bureau are playing the oil market tactically, or "buying the dips" in trader parlance. They add to stocks whenever Brent crude prices fall to key support lines, as occurred earlier. This is currently around $105."It's is very similar to what they have been doing with copper. Whenever it drops below $7,000 (a tonne), they see it as a buying opportunity. They do the same with agricultural commodities," he said.China is putting a floor of sorts underneath the global oil market, calling into question predictions by the big oil trading banks that prices will deflate this year as more crude comes on stream from Libya, Iraq, and Iran, and as the US keeps adding supply shale.The strategic buying could go on for a long time since China is rapidly expanding its reserve capacity from 160 million barrels to 500 million by 2020, with sites scattered across the country. John Mitchell from Chatham House says China has stocks to cover 46 days of imports compared to 209 for the US, based on estimates from last year. India is acutely vulnerable to any disruption with just 12 days cover. The minimum safe threshold for OECD states is deemed to be 90 days.




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Source: Oil & Gas News