Trying to untangle the mystery of China’s oil reserve

One of the big mysteries in the oil world is how much crude China is sticking in its newly-developed strategic petroleum reserve. In a recent report,  Barclay’s attempts to answer the question.

In short, the answer is: not much in 2010, but maybe a lot more in 2011.

Unlike the US Strategic Petroleum Reserve, where you can go on its website and find out exactly how many barrels are in there every day, the Chinese reserve has always been a mystery. US purchases and sales are conducted publicly; China’s reserves and purchases are not disclosed. So an analyst has to look at the little data that exists about the reserve, and combine it with informatin about other aspects of China’s crude consumption, to draw a conclusion.

According to Barclay’s, citing a report by China National Petroleum Report, capacity at the end of last year stood around 178 million barrels, which should mean about 76 million barrels of capacity were added in 2010. And local news reports, according to Barclay’s, looks like about 19 million barrels were added last year in actual oil.

China’s total crude imports last year were about 4.74 million b/d, according to Barclay’s, so the amount of oil that went into the nation’s strategic storage was like an eyedropper leak compared to total consumption. Barclay’s says its own estimate, based on other data, is that actual purchases were even less than the local reports citing the 19 million barrels figure; the investment bank figures it is close to about 10 million barrels.

So there’s still a lot of empty storage to fill, and Barclay’s is assuming that the Chinese will get to work on it this year. On top of the 57 million barrels of capacity added in phase two, phase three calls for another 92 million barrels to be constructed. But Barclay’s assumes another 100 million barrels flowing in during the next year. “The stage is set for SPR buying to play a more important role this year, but volumes are not significant relative to China’s overall consumption,” the report said. “If we assume another 100mb is filled in the next 12 months, this will amount to roughly 250kb/d of purchases in 2011, skewed toward the higher end of likely outcomes.”

As far as that buying being a driving force in prices, Barclay’s is skeptical: “Given that SPR buying will be relatively price sensitive, this should be seen more as a support rather than a driving factor in global crude price movements,” the report said.

Platts