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Page added on December 4, 2015
China expected to double strategic oil purchases
China is likely to double its strategic crude oil purchases next year as one of the biggest ever price routs spurs a buying spree that would offer some support to battered markets for the commodity.
Beijing will add 70-90 million barrels of crude to storage tanks in 2016 to build up its strategic petroleum reserves (SPR), according to most respondents in a poll of five analysts and data collected by Reuters analysts.
That is the equivalent to almost a fortnight’s worth of average Chinese imports and would help push the country’s overall oil purchases to record levels, challenging the United States as the world’s top importer.
Any sign of fresh buying for China’s strategic reserves would offer rare support to crude prices , which have more than halved since 2014 on soaring global output that has seen 0.5 to 2 million barrels of oil being churned out every day in excess of demand. The Organization of the Petroleum Exporting Countries (OPEC) meets in Vienna on Friday to discuss its output target.
“Next year, stockpiling is going to play a bigger role (in China) than this year,” said Wendy Yong at energy consultancy FGE.
China’s secretive SPR build-up, which the government wants to raise to OECD-standards of 90 days’ worth of import demand, started in 2006 as part of a drive to become more energy independent. The government’s National Development & Reform Commission did not respond to requests for comment on Friday.
Researchers at FGE, consultancy ICIS and bank Barclays estimated that China would double crude imports for SPR facilities to 70-80 million barrels next year, versus 30-40 million barrels in 2015, while other analysts said the volume could be higher still.
“There is still significant spare capacity in China’s SPR, which can take in another 12 million tonnes of crude (88 million barrels),” said Yaw Yan Chong, Asia director at Thomson Reuters Oil Research and Forecasts, which he said the government would try to fill provided prices remain relatively low.
He added that this was equivalent to 66 percent of remaining capacity in SPR facilities based on an analysis of China’s import trade data.
SPR imports of around 90 million barrels would take the reserve’s total to over 300 million barrels, more than halfway towards the government’s target of reaching 550 million barrels by 2020.
Energy Aspects said it was possible that 150 million barrels of capacity could be filled in 2016, but said that some of that would likely slip into 2017.
The discrepancy in estimates is partly because some commercial storage is also used for strategic reserves without being reported as such.
UNDER CONSTRUCTION
Six new SPR sites, including some commercial assets being used for the programme, with a total capacity of 146 million barrels are under construction and experts expect most of them to be filled next year.
But some senior Chinese traders were more cautious, arguing that a clampdown on safety after the deadly Tianjin port blast this year could delay new depots, stifling imports.
A trading executive previously involved in reserve purchasing estimated an additional 30 million barrels would be stockpiled for 2016, versus 20-30 million this year. He declined to be identified due to the sensitivity of the matter.
“As China has already built up a comfortable cushion of stocks, the pressure to rush has eased, especially as the government is more convinced that low oil will stay for another year or two,” he said.
But analysts expect excess oil production to cushion the impact on global oil markets of the strategic stockpiling.
“The price impact of China’s SPR stockpiling is likely to be small,” said Barclays analyst Zhang Chi.
“Compared with the estimated excess supply in the market of about 1.5 million bpd, our estimated 0.23 million bpd of crude purchases for the SPR would provide only marginal support for the market balance.”
14 Comments on "China expected to double strategic oil purchases"
Plantagenet on Fri, 4th Dec 2015 11:55 am
Interesting that the Obama administration is selling off the US SPR at the same time that the Chinese are building up their SPR.
The dumb Obama administration thinks the current oil glut will go on forever, while the smart Chinese are preparing for peak oil and oil supply interruptions.
Davy on Fri, 4th Dec 2015 12:19 pm
Planter I am no fan of Obama but I am pretty sure there is more to it then your comment.
Energy Investor on Fri, 4th Dec 2015 1:53 pm
From Obama’s doctrinaire comments on climate change, I would say that on that subject and on peak oil, he is “all mouth and no trousers”.
The Chinese have been using surplus US dollars to buy forward contracts on oil (and many other resources – including yellow cake) for the last 8 years and they understand the true value of fossil fuels as a bridge to the future.
Obama certainly doesn’t seem to understand the strategic implications for not just USA but also for allies who are seeing oil from their previous sources, getting diverted East.
Obama is simply besotted with the notion of energy independence for USA and will be long gone when his ignorance is exposed.
Harquebus on Fri, 4th Dec 2015 6:21 pm
The U.S. tight oil, although expensive, can be considered a strategic reserve.
makati1 on Fri, 4th Dec 2015 6:27 pm
Harquebus, how do you figure that? The best sites are already dry. All that is left are the less productive, smaller reserves that may or may not be accessible in an emergency. Just askin’.
makati1 on Fri, 4th Dec 2015 6:34 pm
Energy Investor, your observations seem to be correct. Selling oil from the reserves seems to be an act of either stupidity or desperation or both. I have not figured out the reasoning behind it. Buy hi and sell low doesn’t sound logical. Especially when you are selling your ‘preps’ so to speak.
Maybe it is just another sign of the ongoing plan to destroy the US economy and make it level with the rest of the world? After all, that is the goal of the One Worlders, isn’t it? And the plan seems to be working unusually well. Just look at the 1st world today. Another 4-8 years of an idiot-in-chief should do it.
energy investor on Fri, 4th Dec 2015 8:59 pm
makati1,
I have the view that much of the oil we use is wasted. So, as is pointed out eloquently by Short and others, the higher the price, the more likely many passtimes and wastages will disappear. But that may leave a range of strategic and necessary uses to be filled. By the time global production has fallen (as it eventually must) to say 30 million bbls per year, then the Canadian tar sands and various light tight oil regions will be able to be exploited and justify higher prices.
This will leave many countries like England,France and Germany with very little respite other than very high prices.
For North America, the oil in the ground may be at that point, either a strategic resource or a stranded asset…depending on price and utility.
But its existence will possibly permit some future versatility that less hydrocarbons endowed countries do not have.
China handles this in two ways. The first is the exchange of surplus US dollars by way of loans etc in exchange for future supply commitments (at the prices ruling in the future time), and the second is to round up contingent resources in the South and East China Seas, using their island building strategy to surround them.
They clearly treat the unexplored sub sea oil potential – off their coast – as a critical future resource – such that they are already challenging their neighbours legitimate domains.
Given the US Government reaction, at least someone at or near the top must understand this issue.
makati1 on Fri, 4th Dec 2015 9:24 pm
Energy, you assume that oil is the reason for the buildup in the South China Sea, and it probably is part of it, but I see it more a military action to secure it’s sea lanes and coastline. The oil would be there for the grab, if they ever need it. After all, it has always been there and none of the other countries have the ability/cash to develop the area anyway. Or to keep China from taking it when they want it.
makati1 on Fri, 4th Dec 2015 9:35 pm
For your weekend reading pleasure:
“…When I saw these responses, it fully sank in just how surrounded my family and I are by human livestock and just how acutely dangerous that position is. I realized that, when an attack of that scale and shock-value again happens on American soil, the pack-minded multitudes all around me will deafeningly bay for war. And the herd-minded hundreds of millions will stampede to the State for security, bleating to please, please be shorn of their remaining liberties.
I am not terrified of the terrorists; i.e., I am not, myself, terrorized. Rather, I am terrified of the terrorized; terrified of the bovine masses who are so easily manipulated by terrorists, governments, and the terror-amplifying media into allowing our country to slip toward totalitarianism and total war. …”
http://www.zerohedge.com/news/2015-12-04/nothing-fear-fearful-themselves
The West is experiencing blow-back from their ‘wars of choice’ in the ME. Internal destruction far greater than any ME country could accomplish by military force.
Davy on Sat, 5th Dec 2015 6:34 am
Where I see a disconnect with many people’s peak oil reasoning here is on the global macro systematic side. Oil is a globally capital intensive activity. The easy oil is gone and nowhere is it in significant quantities without complex machines and processes. Gone are the oil geysers of the 19th century. Systematically at some point there will not be a status quo economy we see today when oil cannot be delivered in adequate supply. This vast system of production, distribution and financial exchange driven by growth and economy of scale will cease to exist.
Many here who can picture a price rise and supply shortages do not see this. It is as if we are habituated to our status quo scale of economy. The only difference will be substitution and price rationing but the basic structure will remain per these individuals. These views fail to account for systematic bifurcation of human activity.
At the global macro systematic level the economy and oil are the front legs and the back legs of a chair the modern man’s world sits on. This is precisely why when we look at collapse from a peak oil perspective we must by definition look at the economy side of the equation as equally important. They have equal important in relationship and separateness. You can include the economy as a dynamic of the peak oil argument as Short does. You can talk about the business of production like Rock does. An equally important but in some ways separate discussion is the economy that oil feeds and economy that supports oil.
This economy makes oil possible and oil makes this economy possible. Without adequate supplies of oil the economy will cease. High prices will be irrelevant because the oil will not have realistic uses. There will not be the traditional realistic ways to produce it. Sure oil will have uses for many years hence. Oil will still be produced far into the end of global modern man. There are places it will be produced and utilized for multiple different reasons and scenarios. It will become a specialty commodity much like gold. It will cease to be a foundational commodity at some point.
The huge question before us is how low can both the economy and oil drop in their participation in the vital balance supporting modern man? How low can supply go before the global economy shuts down from fuel shortages and the knock on effect to food supply? How depressed will the economy get before oil can’t be delivered at any price to the needed nodes of production and distribution. How long and hard will the existential decay of all aspects of modern man be from both oil and the economy as they decay.
We can include the side issue of once the economy and oil complex decay how long before resource wars begin to further decay what is left. Ultimately it is oil and the economy that feeds us and the security of governments that sees food equitably delivered. Sure we know there is unfairness but in the sense of systematic continuity there must be security of delivery throughout the system for the system to function with or without perceived fairness. In the end it is oil and the economy that delivers food that civilization rests on. There is nothing more significant than that.
Everything about modern man is contingent on food supply. This has always been the case but modern man has been habituated by economy and oil to misrepresent the importance of food. Food has become an afterthought. This is especially true of the sheeple but even the academic. How many specialize academics have no clue of the real nature of our food chain. The reason they don’t is they don’t understand oil and in many cases the global macro systematic side of the economy. Hence we see multiple linear extrapolations of predictions and forecasts into the future as if the basic structures of life will remain the same.
What if they don’t? What about a systematic bifurcation point? This point would be a Minsky moment financially where economically trade ceases to function because of a complete loss of confidence in exchange of goods and fiat currency through trade. You can talk barter all you like but not between nations at our global level. This is just not possible in any way shape or form. There must be abstract instruments of exchange for real physical goods. Gold is not adequate in scale. In a greatly reduced economy that is regional and local it will have a place. Barter will have a place locally. Oil likewise will become a gold like substance especially considering in the coming collapse we will have a hybrid world of the old fossil fuel age and the new age of pre-modern economy and food production.
We just don’t know the breaking point. We don’t know the degree of fall. We don’t know what economy that will be. I can assure you depending on the speed and the level of drop it will be nothing like we have today. The rebalance of consumption and population will be within the range of a magnitude lower. The possibilities of the low side are greatly increased by the fact that there are little to any plan B’s for descent. We must have good decisions to lower the descent speed.
It is my hope that a crisis will bring this on. So the key is the initial crisis to how hard we fall. We saw in 08 good decisions were made in the very beginning then the same old growth meme was returned to. I do not know how long this growth meme can be maintained with a paradigm of descent but at some point it won’t. Oil and the economy both have a point of no return in relation to what we see today.
rockman on Sat, 5th Dec 2015 9:27 am
H – “The U.S. tight oil, although expensive, can be considered a strategic reserve.” I understand the point you’re trying to make. But for a strategic reserve to be beneficial in a crisis it has to be available in weeks or at most months. The shale would take much to long to ramp up…and only after a long period of sustained and very high oil prices.
Which actually makes me realize that maybe we should be calling our SPR by a different name: TPR…Tactical Petroleum Reserves. That more accurately represents a readily available short term response. “Strategic” tends to imply a more long term broader based response to demand. So the shales might be looked at as “strategic” in a way. But maybe more like a “strategic resource” instead of a reserve.
Energy Investor on Sat, 5th Dec 2015 2:56 pm
Davy, thanks for those thoughts. I suppose many here would agree with them.
Makati1, you could be right and I may attribute too much importance to China’s vision of oil under the China seas.
Rock, I like your tactical versus strategic idea for SPR. It is a bit like me holding enough cash under the mattress to get my family through two months of possible “bank holiday” – as tactical, whereas I hold enough gold to last me a few years for the possible collapse of the global financial system.
Long term strategic would be having my own little farm to feed by family…taking a lot of personal IP, sweat and effort….pretty much like extracting the last of the oil (sub sea, tar sands or shales)…when its value transcends the normal.
makati1 on Sat, 5th Dec 2015 7:41 pm
Energy, I only see that viewpoint because I do not listen to US MSM ‘News’. They are the ones pounding on the oil/NG issue to deflect Americans from their desire to dominate and encircle China. If China controls the South China Sea, they have effectively pushed the US 500+ miles from China’s shores.
rockman on Sun, 6th Dec 2015 9:39 am
Energy – I suspect the original spin by the govt that our SPR was a long term security pitch for the public. That helped hide the fact that by CONGRESSIONAL LAW the bulk of the SPR reserves are specifically dedicated to the Dept of Defense. Eve today try to search for such a detail in the govt records…very difficult. You might find references to some independent researchers.