News Code : 44170

China to Start Buying Oil for State Reserves After Crash

China to Start Buying Oil for State Reserves After Crash

Petrotahlil - China is moving forward with plans to buy up oil for its emergency reserves after an epic price crash, according to people with knowledge of the matter.

The world’s biggest importer is taking advantage of a 60% plunge this year to snatch up cheaper barrels for its stockpiles, a source of considerable speculation in the oil market because of the government’s reluctance to release information about their formation, size or use.

China is taking advantage of low oil prices by filling its strategic reserves

Beijing has asked government agencies to quickly coordinate filling tanks, the people said, asking not to be identified because the matter is confidential. In addition to state-owned reserves, it may use commercial space for storage as well, while also encouraging companies to fill their own tanks, they said.

The initial target is to hold government stockpiles equivalent to 90 days of net imports, which could eventually be expanded to as much as 180 days when including commercial reserves.

Ninety days of net crude imports is about 900 million barrels, according to data compiled by Bloomberg. While the current size of China’s state reserves is unknown, and Beijing could use a different method for calculating net imports, oil traders and analysts estimated it could amount to China buying an additional 80 million to 100 million barrels over the course of the year.

While the purchases could help soak up some of the excess supply in the market, the traders said it fall well short of offsetting the overall destruction in demand wrought by government lockdowns to slow the spread of coronavirus.

Coincidentally, it’s close to the same volume the Trump administration proposed buying last month for U.S. reserves in an effort to help beleaguered drillers. That plan was thwarted last month after Democrats blocked a request for funds.

China is also planning to announce the fourth batch of strategic reserve sites, the people said. The expansion project has the dual advantage of creating larger emergency reserves and as an economic stimulus project to spur construction opportunities as the country recovers from the coronavirus.

Officials at the National Development and Reform Commission, the top economic planner, didn’t immediately respond to requests for comment.
RECENT STORIES ON CHINA’S OIL RESERVES:

Brent crude, the international benchmark, extended gains on Thursday to rise as much as 13% to $27.88 a barrel.

Before the government’s directive was made public, consultancies SIA Energy and Wood Mackenzie Ltd. both estimated that China could probably add 80 million to 100 million barrels to reserves this year before it ran into logistical and operational constraints.

According to SIA, China had about 996 million barrels of oil combined in strategic and commercial storage as of March 31. Another research firm, Orbital Insight, pegged the figure at about 928 million barrels on April 1.

More Oil Please

In September, the head of development and planning at the National Energy Administration said the country had total oil reserves, including strategic stockpiles, for about 80 days. In December, state-owned China National Petroleum Corp. said on its website that the government intends to boost the capacity of its strategic petroleum reserves to 503 million barrels by the end of this year, an indicator of the maximum amount the government can store.

The U.S. currently holds about 635 million barrels in its Strategic Petroleum Reserve, according to government data.

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