China Is Hoarding Oil

china oil

Neil McMahon at Bernstein thinks the oil price spike can be attributed, in part, to China building up its Strategic Petroleum Reserve.

Yesterday, Platts said that China’s demand for oil in April showed its first year over year demand increase in six months, ticking up 12%. Net imports for April were 15.81. In March it was 15.87 million metric tons. Both are highs for the year.

Berstein (via Energy Source) We believe this reflects not strengthening demand, but rather China’s efforts to boost its Strategic Petroleum Reserve after recently completing construction of Phase 1. To verify this we have utilized satellite tracking of tanker movements, as well as time-lapse satellite images to observe the amount of storage expansion. Our analysis confirms that tanker capacity arrivals into China have spiked up in recent months, in line with imports, but more importantly, tanker arrivals into SPR ports have increased materially (around 400 Kbbl/d according to our estimates).

…And satellite images confirm a significant increase in storage construction in the last few years. This suggests that China is stock-piling crude oil, in line with its stated objective to increase its days of forward cover, which currently stands at only 28 days of imports and 14 days of total consumption (if the SPR is full). This is well below the target level of 90-100 days. Overall, this recent drive by the Chinese to fill their SPR should have offered some support to crude prices, and will continue to do so going forward during implementation of the next two phases of the project.

During yesterday’s Goldman Sachs alternative energy conference, Steve Fludder, GE’s alt-energy VP said, China is very concerned about its energy security. That’s the primary force behind its push into alternative energy, as well as a reason that it won’t abandon coal, which is a domestic good, anytime soon.

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