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Will China’s Strategic Petroleum Reserve Save Oil Markets?

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Written by Shuli Ren

Click HERE to Read the Article by the Publisher.


China’s oil imports have been a critical source of demand strength this year. With global demand estimated to grow at 1.3 million barrels a day, oil imports in China increased by 13% over the last year, representing a rise of 0.9 million barrels a day. So you see how important China has been.

Much of these oil imports went into China’s Strategic Petroleum Reserve. In the first-half this year, China added 136 million barrels to its Strategic Reserve, taking the total to 369 million barrels. This represents a 60% growth.

However, oil markets are getting worried Beijing will stop filling its Reserve because it has already run out of space to store all that cheap oil. China has only 262 million barrels of official Reserve capacity, so the government has been using third-party storage space to store all this oil. Plus, oil is not as cheap as earlier in this year, with Brent crude trading at $47.22 this morning.

Bernstein Research‘s Neil Beveridge thinks China will keep on buying as long as oil prices stay at this level, because, well, Beijing is ambitious! He wrote:

China has now reached 51 days import cover which is more than half way to their target of 90 days. With 369MMbbls of SPR fill by the middle of 2016, China will need to reach over 800MMbbls of fill by 2020. At the current rate of fill however, China could achieve this over the next 2-3 years. While official SPR capacity is only forecast to increase to 467MMbbls by the end of the decade, we expect China will continue to take advantage of third party storage which has allowed SPR filling to be greater than we or most others expected.

On the other hand if oil prices rise significantly, there is a risk that we will see a significant slowdown in oil imports.

This morning, Sinopec (386.Hong Kong/SNP) jumped 1.8%, PetroChina (857.Hong Kong/PTR) rose 1.4%, and Cnooc (883.Hong Kong/CEO) gained 1% on overnight oil strength. Overnight, the United States Oil Fund (USO) advanced 1.3%.


Tags: oil, crude


Written by Shuli Ren

Click HERE to Read the Article by the Publisher.

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