Business | Oil & Gas
China stockpiling thwarts global price fall
China will add up to 4 million barrels of crude to its strategic storage tanks by mid-December, an industry source said, more than doubling stocks in a move analysts say is providing a floor to global prices.
- Reuters
- Published: 00:00 November 2, 2006
Beijing: China will add up to 4 million barrels of crude to its strategic storage tanks by mid-December, an industry source said, more than doubling stocks in a move analysts say is providing a floor to global prices.
The new crude will top up China's first state reserves facility near Ningbo to about one-fifth of its capacity, likely spurring debate over whether Beijing will allow its state energy firms to dip into the stocks at will, creating a potentially powerful tool for maximising trading profits.
The cargoes, bought by top refiner Sinopec, include a 950,000-barrel shipment due for discharge in mid-November, said a second industry source based in Ningbo.
"They are on the way," the first source told Reuters. The source declined to specify the type of crude or its origin.
Traders speculated that some of the additional barrels could be from Oman. Sinopec, the single-largest buyer of Omani crude, was seen lifting around 8 million barrels of the grade for November loading, more than its usual 4-6 million barrels.
The incoming crude follows the storage's first fill in August of around 3 million barrels of Russian crude Urals, the first overt sign of the world's second-largest consumer stocking up on emergency supplies as part of its planned buffer to disruptions.
The storage tanks at Ningbo, near Sinopec's 400,000 barrels per day (bpd) Zhenhai refinery, have a total capacity of about 33 million barrels.
Averaged over the August-December period, the stockbuild is running at about 50,000 bpd, the low end of analysts' estimates and under 2 per cent of China's total imports, which are up 16 per cent at 2.92 million bpd so far this year.
Although China's decision to buy its first Russian cargoes appeared ill-timed against crude oil's peaks at over $77 a barrel in mid-July and early August, the latest purchases seem to be savvier, as crude oil fell sharply to $60 by mid-September, when the latest cargoes would have been bought.
But analysts warn that China's long-anticipated stockbuild may prevent further declines.
"Why have oil prices failed to obey the bears commands? The most important reason is China," Societe Generale commodity research said in a report.
"China's buying for its strategic reserve is flooring any price decline."
Domestic oil demand from the world's fourth-largest economy is expected to rise by 6 per cent this year, double the pace in 2005, due to growth in oil-guzzling sectors such as construction, heavy industries and transportation.
But some analysts are shifting focus from the moderating pace of demand growth in China which startled markets in 2004 with a 15 per cent surge to its apparent intent to become a more potent force on global commodity markets.
More storage sites are under construction for a nationwide stockpile that will total more than 100 million barrels in the next few years, a potentially powerful price lever.
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