Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on June 11, 2014
China’s Record Oil Hoarding Seen Keeping Crude Above $100
China is hoarding crude at the fastest pace in at least a decade, shielding itself from supply disruptions and helping keep prices above $100 a barrel.
The country imported a record volume in April as it emulates steps taken by the U.S. in the 1970s to create a strategic petroleum reserve, government data show. Chinese President Xi Jinping is building stockpiles as his nation clashes with Vietnam over resources in the South China Sea and faces potential risks to oil sales from Russia, Africa and the Middle East because of sanctions and violence.
The purchases are helping drive oil prices higher, according to Barclays Plc, Citigroup Inc. and Nomura Holdings Inc. As China’s thirst for crude grows with the expansion of its emergency stockpiles and refining, the International Energy Agency estimates that the Asian nation is poised to surpass the U.S. as the world’s largest oil consumer by 2030.
“This panicked stockpiling is one of the ways that geopolitical tensions can actually tighten physical oil markets,” Seth Kleinman, a London-based analyst at Citigroup, said yesterday by e-mail. “This buying spree is partly driven by the infrastructure needs of China’s ongoing refinery expansion, but also reflects the rise in geopolitical tensions.”
West Texas Intermediate crude, the U.S. benchmark, gained about 9 percent over the past year to $104.35 a barrel on the New York Mercantile Exchange as of yesterday. Brent, the marker for more than half the world’s oil, climbed about 5 percent to $109.52 a barrel on the London-based ICE Futures Europe exchange over the same period and was at $110.09 at 10:56 a.m. London time today.
Significant Rise
China bought more than 600,000 barrels a day of surplus crude from January to April, a record for that time of the year based on data compiled by Bloomberg from Chinese statistics tracked since 2004. The surplus supplies are calculated by subtracting refinery runs from the combined total of net imports and domestic production.
The imports suggest a “significant” rise in commercial and emergency stockpiles, according to the IEA, an adviser to 29 of the most industrialized nations on energy policy.
The buying “would benefit energy security not just in China but globally and crude imports of that scale might also support oil markets and keep commercial stocks from rising further elsewhere,” the Paris-based agency said in its monthly market report released May 15.
China doesn’t announce when it fills the emergency reserve and stockpile totals are not made public.
Black Box
“There’s no official record,” Shi Qi, an analyst with CEBM Group, said by phone May 23. “Actual filling progress of China’s strategic oil reserves is in a black box.”
The official website of China’s Center for Oil Reserves has a two-paragraph description of the office, a branch of the National Energy Administration, though no information about the level of the reserves themselves.
A spokesman for the National Development and Reform Commission, the country’s top planning agency, declined to comment when contacted today by phone. He asked not to be identified because of internal policy.
The world’s second-largest economy, which gets more than half of its crude from overseas, plans to build emergency reserves equivalent to 100 days of net imports by 2020, China Petrochemical Corp., the nation’s top refiner, said in 2009, citing the plan approved by the State Council.
That volume is equal to more than 680 million barrels based on April’s customs figures, compared with the equivalent of 349 million in 2008.
Three Phases
According to the U.S. Energy Information Administration, officials decided in China’s 10th Five-Year Plan, which covered 2000 to 2005, to establish a government-administered strategic oil reserve to help shield the nation from potential supply disruptions.
The country had 141 million barrels of strategic reserve capacity at the end of last year, China National Petroleum Corp., the nation’s top energy producer, said in an annual report released in January. China finished building four sites in 2009 that can hold about 103 million barrels under the first of three phases of the reserve plans.
Two of seven sites in the 191 million-barrel second phase were completed by the end of last year and construction has begun on two of the three sites for the third phase, according to CNPC.
Potential Disruptions
“We expect prices to strengthen slightly going forward due to continued supply shortfalls and geopolitical tensions, and continued Chinese buying would help tighten the market as well,” Sijin Cheng, a commodities analyst at Barclays in Singapore, said in an e-mail on May 30.
Crude production from the Middle East and North Africa has been curtailed by a battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran. Russia’s conflict with Ukraine has also stoked fears of a disruption of supplies from the world’s largest energy exporter.
China is building reserves while it hunts for future resources. Its claims in the South China Sea have put it at odds with neighboring Vietnam and the Philippines, which are also exploring for oil and gas in the disputed waters.
“The escalating maritime tensions in offshore China also call for accelerated strategic oil reserves stockpiling,” Gordon Kwan, regional head of oil and gas research at Nomura, said in an e-mail May 23. The buying will sustain “high oil prices at least above $100 for the rest of the year,” he said.
Oil Embargo
Crude imports are also fed into new refineries, which build stockpiles before starting full operations. China’s refining capacity is forecast to rise 6.5 percent to 40.6 million tons this year, CNPC said in the January report. That’s about 13.4 million barrels a day. The country imported 6.17 million barrels a day during May, up 11 percent from the same month last year, the General Administration of Customs said June 8.
The U.S. established its strategic petroleum reserve in 1977 after the 1973-74 Arab oil embargo. The storage, located in the Gulf Coast where more than half of U.S. refining capacity is located, peaked in 2009 at 726.6 million barrels, according to the EIA, the Energy Department’s statistical arm. Supplies were 691 million as of May 23, enough to support 37 days of consumption.
The SPR has been tapped three times for emergency releases, most recently in June 2011 when a sale of 30 million barrels was announced as part of an IEA plan to ease shortages of Middle East supply.
21 Days
The U.S. reserve can hold the equivalent of about 95 days of imports, while China’s can probably now cover about 21 days, according to estimates by Amrita Sen, a London-based analyst with Energy Aspects Ltd., a research company.
Purchases for China’s strategic supply will pull 200,000 to 300,000 barrels a day of crude from the global market this year, CEBM Group, an independent investment advisory firm based in Shanghai, said in a March research note.
The buying may add $2 to $3 a barrel to Brent prices, according to Guo Chaohui, an oil analyst at China International Capital Corp., a Beijing-based bank.
22 Comments on "China’s Record Oil Hoarding Seen Keeping Crude Above $100"
westexas on Wed, 11th Jun 2014 7:44 am
I think that Saudi Arabia can accurately be described as “metastable,” in that it appears to be stable, but it is inherently unstable.
A good book on Saudi Arabia:
http://www.amazon.com/On-Saudi-Arabia-Religion-Lines/dp/0307473287
In any case, in 2010 Syria + Libya produced a combined 2.2 mbpd (total petroleum liquids + other liquids, EIA). The EIA shows that their 2013 fourth quarter combined production was down to 0.4 mbpd, a decline of 82% from 2010.
In 2013, according to the EIA, combined production from Iraq + Saudi Arabia was 14.7 mbpd. In 2012, their combined net exports were 10.9 mbpd.
If Iraq and Saudi Arabia were emulate the civil wars in Syria and Libya, their combined production would fall from 14.7 mbpd to about 3 mbpd, presumably
eliminating their net exports.
In 2012, Global Net Exports of oil (GNE*) were 44 mbpd, and Available Net Exports (ANE, the volume of GNE available to importers other than China & India) were 35 mbpd.
*Combined net exports from the Top 33 net exporters in 2005, total petroleum liquids + other liquids, EIA
eugene on Wed, 11th Jun 2014 7:47 am
It’s the Chinese! If pulling 200 to 300K barrels a day off the market is causing the problem, it’s a clear indication of how tight supplies are to me. I don’t know what global consumption is but gotta be 80 million a day or more and an extra 300K is creating a problem?
rockman on Wed, 11th Jun 2014 8:02 am
More needless inflammatory spin IMHO.
Hoarding: verb: to accumulate for preservation, future use, etc., in a hidden or carefully guarded place.
First, no one’s inventory of oil, especially the US SPR, is “hidden”. I have money in my saving account which is hidden from the rest of the world but I don’t think anyone would classify me as a “money hoarder”. And the US is bound by treaty to share any emergency SPR release with a number of countries. And hoarding is typically used during period of shortages. There is no current shortage of oil: anyone who can afford the current oil price can buy all they wish.
The Chinese are building an oil reserve just as the US and some other countries have. I doubt many would spend much time reading about what they already understand. Which IMHO is exactly why the writer thru in “hoarding”…a cheap hook to pull in readers.
Davy, Hermann, MO on Wed, 11th Jun 2014 8:16 am
Two things to look at here. Is not this Chinese activity a signal of what is ahead. Read between the lines because actions like China is making are being made because of a risk management strategy of a grand scale. If there is one thing the Chinese do well is grand plans. I am not saying their results are the best practices or offer the best returns but the Chinese are effective at large scale undertakings. The second issue is the economic unwind in China and for that matter the global financial system. Let’s just deal with China now. China is in severe economic consequences from years of policies with moral hazard and long term consequences. In the name of growth china has allowed a huge investment bubble occur in multiple areas, industries, and markets. This has created the well know ghost cities, high speed trains to nowhere, and massive heavy industry overcapacity. They have an out of control housing bubble. The most unsettling issue is corruption, manipulation, and disregard for law that is the worst in the world. Nowhere has this occurred with such a large volume and with state sanction. China’s credit creation is phenomenal and the percentages of growth and size never seen in human history. The US actions are small in comparison but I am not discounting the problems posed by the US. My point is China’s growth for a whole host of reasons is suspect. In summation it is plain and simple limits of growth and diminishing returns with massive overshoot from overpopulation and pollution. I will predict China is a dead man walking in the global stage and “THE” biggest danger to the global system at the moment followed in a close second by the US. So look at demand destruction for oil soon because of the loss of Chinese demand.
Davy, Hermann, MO on Wed, 11th Jun 2014 8:20 am
Further issues in China the consequences and unintended consequences of deflating bubbles!
http://www.zerohedge.com/node/489535
bobinget on Wed, 11th Jun 2014 8:27 am
Saudi Financed Fighters Advance on Iraq’s biggest refinery:
By Ghazwan Hassan
TIKRIT, Iraq, June 11 (Reuters) – Sunni insurgents from an al Qaeda splinter group extended their control from the northern city of Mosul on Wednesday to an area further south that includes Iraq’s biggest oil refinery in a devastating show of strength against the Shi’ite-led government.
Security sources said militants from the Islamic State in Iraq and the Levant (ISIL) – Sunni militants waging sectarian war on both sides of the Iraqi-Syrian frontier – drove into the town of Baiji late on Tuesday in armed vehicles, torching the court house and police station after freeing prisoners.
The militants offered safe passage to some 250 men guarding the refinery on the outskirts of Baiji, about 200 kilometers south of Mosul, on condition they leave.
Iraq’s Foreign Minister Hoshyar Zebari called on his country’s leaders to come together to face “the serious, mortal” threat. “The response has to be soon. There has to be a quick response to what has happened,” he said during a trip to Greece.
Zebari said Baghdad would work with forces from the nearby Kurdish autonomous region to drive the fighters from Mosul.
Baiji resident Jasim al-Qaisi said the militants had also asked senior tribal chiefs in Baiji to persuade local police and soldiers not to resist their takeover.
“Yesterday at sunset some gunmen contacted the most prominent tribal sheikhs in Baiji via cellphone and told them: ‘We are coming to die or control Baiji, so we advise you to ask your sons in the police and army to lay down their weapons and withdraw before (Tuesday) evening prayer’.”
The Baiji refinery can process 300,000 barrels per day and supplies oil products to most of Iraq’s provinces and is a major provider of power to Baghdad. A worker there said the morning shift had not been allowed to take over and the night shift was still on duty.
The push into Baiji began hours after ISIL overran Mosul, one of the great Sunni historic cities, advancing their aim of creating a Sunni Caliphate straddling the border between Iraq and Syria.
bobinget on Wed, 11th Jun 2014 8:42 am
The question remains: Can this Sunni Army advance on
Baghdad without opposition?
It seems this latest round of terrorist bombings in Southern Iraq had its desired effect.
I’ll wager Sunnis won’t destroy the oil fields or pipelines but we will have a ‘Libyan’ type situation for some time. The nation of Iraq seems divided into three.
The US won’t intervene. It won’t do to kill off Saudi Financed fighters even if they are al Qaeda ..
Bottom line, the American Republican Party is not alone having a civil war.
Davy, Hermann, MO on Wed, 11th Jun 2014 8:58 am
Bob, A Sunni Army is no Match for the Shia army in and around Baghdad where the Shia forces are solidly Shia, motivated, and well armed. This action is the defacto division of Iraq into three parts and most probably the division of Syria in two.
Davy, Hermann, MO on Wed, 11th Jun 2014 9:00 am
Further global economic and financial issues that point to more demand destruction. The question is will demand destruction keep up with production destruction? Things look ominous!!!
http://www.zerohedge.com/node/489537
Perk Earl on Wed, 11th Jun 2014 9:15 am
Eugene wrote; “It’s the Chinese! If pulling 200 to 300K barrels a day off the market is causing the problem, it’s a clear indication of how tight supplies are to me.”
Seems like every few days some article comes out declaring some minor factor in a recent oil price rise or fall. Fact is oil price has been in a very small window for how long? A year – two? Blaming China for supposed ‘hoarding’ is a great way to falsely give westerners a substantive reason why oil is as high priced as it is and has recently gone up just slightly, to distract from the consistently high price of oil. I’ll bet China adding to their SPR has had a very minor effect on oil price.
Since apparently the ‘speculation’ meme no longer works because of consistently high oil price over a long period of time, other factors must be used to generate blame. And we surely don’t want to own any blame, so in this instance it’s China hoarding.
mack on Wed, 11th Jun 2014 12:15 pm
Rock, it’s simple. When the Chinese do it it’s hoarding. When Americans do it it’s storing. lol
J-Gav on Wed, 11th Jun 2014 1:02 pm
Agreement with those who qualify this article as basically “spin.”
Further – here’s a little paradox we could eventually bump up against: Imagine convergence between 1- a financial unraveling and 2- heightened geo-political tensions in oil-producing regions. Not entirely unimaginable so what would be the …
Result? Well, I dunno, but it seems like there might be two contradictory forces at work there concerning oil prices. On the one hand you’d have demand destruction stemming from a diminished ability to pay, which should put downward pressure on price. While on the other, you’d have upward price pressure coming from diminished ability to produce … Any ideas, Rock, Hill Group, anybody? as to whether the two might tend to balance each other out …
Ezrydermike on Wed, 11th Jun 2014 1:36 pm
I think you all are missing the point here. This is obviously Obama’s fault.
Northwest Resident on Wed, 11th Jun 2014 1:45 pm
“This is obviously Obama’s fault.”
But only if you see it as a bad thing. If you see it as a good thing, then Obama had nothing to do with it, of course, and other “market forces” are in play.
J-Gav on Wed, 11th Jun 2014 1:50 pm
Ezryder – That goes without saying on this board – we are all acutely aware that Obama wants to kill our grand-mothers, do away with Christmas, set up Sharia law etc and is generally indistinguishable from Beezlebub incarnate.
Davey on Wed, 11th Jun 2014 3:08 pm
Yea Gav, I imagine it will be the dynamics of demand and production destruction. Both are equally powerful. I will say chaos means randomness which means worse than a dart board throw for predictions. You are talking a very volitile mix. This is the kind of mix that will bring the whole system down In short order.
Makati1 on Wed, 11th Jun 2014 8:47 pm
China knows what is coming and is preparing for it like the rest of us ‘prepers’. Spin from the West’ MSM Ministry of Propaganda is just more proof of coming events. The West cannot allow Russia and China to destroy the dollar and a war is in the offing.
Did you know that Japan did the same thing, hoard oil and other resources, just before they started WW2 by invading China in 1931?
Northwest Resident on Wed, 11th Jun 2014 9:17 pm
Makati1, China could be hoarding oil and other resources for reasons other than war. I agree that the leaders of China fully realize how precarious the global economic and energy situation is and are making preparations. But I just don’t see where it ends up being any kind of full-scale war between China, America, Russia or any other countries. Everything to lose, nothing to gain. There isn’t enough energy left to fight big wars. They just aren’t that stupid. Are they?
Davy, Hermann, MO on Thu, 12th Jun 2014 6:14 am
NR, Mak has a warp mind. He fantasizes about great wars and the glory that will result to his Asia with China and Russian hegemony. This he does all the while his slum abode in the P’s is falling apart in steady slow motion collapse.
Perk Earl on Thu, 12th Jun 2014 8:31 am
“There isn’t enough energy left to fight big wars.”
That is an interesting point, NWR. Maybe there can be a drone world war. Each country gets x number of drones and the last country with drones in the air wins an extra million barrels a day for their economy. Drone battles are waged monthly over the Utah salt flats.
Northwest Resident on Thu, 12th Jun 2014 9:27 am
Davy — From my reading of Makati’s posts, what he fantasizes about the most is the total, merciless destruction of America. It isn’t that he loves China or Russia so much — it’s that he passionately hates America — as far as I can tell. Any enemy of my enemy is my friend — which is why a major part of Makati’s violent fantasies about America include the equally improbable fantasies of China and Russia joining together to take on the hated America.
Perk Earl — If only war could be so much fun, interesting and devoid of death and suffering. No such luck. But I truly do believe that the great powers will refrain from outright open warfare simply because they are all locked in to the global financial system and any one attacking the other would be mutually assured destruction (without the nukes), also because there isn’t a damn thing worth fighting over anymore, and of course also because one good war with tanks and ships and buzzing jets and mass troop movements would burn up the world’s energy supply like a flash of gunpowder — resulting in mutually assured destruction even without the nukes.
Lots of small scale conflicts is what the future holds. We’re heading back to regional tribe-against-tribe wars. Ye-hawwwww!
Pops on Thu, 12th Jun 2014 10:03 am
There is always a “cause” for high oil prices and it is never the obvios fact that supply can’t meet demand – but pundits and fluffers gotta earn their keep.
China net imports have been flat for almost 2 years.
http://www.eia.gov/todayinenergy/detail.cfm?id=15531