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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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China Stockpiling Oil At Highest Rate In Over A Decade

China might be in the midst of another round of stockpiling, stepping up crude oil imports to fill its strategic petroleum reserve (SPR).

The slowdown in oil demand in China is one of the chief concerns regarding the state of oversupply in global oil markets. Excess production has driven down prices, but soft demand in China over the past year or so has led to a protracted recovery.

After a period of softness, oil imports could be rising once again. Bloomberg reports that the number of oil supertankers docking at Chinese ports is at a 16-month high. And there are 83 supertankers currently on their way to China, with a capacity of 166 million barrels of crude, the highest number in four months. Related: Expert Commentary: Oil Market Analysis and The Week Ahead

In the first quarter of this year China diverted about 787,000 barrels per day into its strategic stockpile, the highest rate since Bloomberg has been tracking the data in 2004. Overall, as of March, China was importing around 7.7 million barrels per day.

The activity makes sense – China needs to fill up its strategic reserve and has had several facilities come online last year, with more storage sites under construction. The timing is fortuitous since China can fill its storage reserves with oil at incredibly low prices. Related: The Real Reason Saudi Arabia Killed Doha

Another source of additional demand comes from a policy change in the downstream sector. The central government recently loosened the rules on oil imports, allowing smaller refineries to import more crude oil. These so-called “teapot refineries,” with capacities of around 20,000 to 100,000 barrels of production per day, struggled under the old restrictions, producing at only 30 to 40 percent of capacity because of an inability to import oil. That has changed, and domestic refining production is set to rise, and with it, so are imports.

This could provide a bit of a lift to crude oil markets, as China’s additional SPR demand and higher refinery utilization could take a bite out of excess supply.

By Charles Kennedy of Oilprice.com

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  • GREG on April 25 2016 said:
    I’ve asked the same question with respect to the Obama administration. With oil prices at record lows, why has not increased storage capacity at the Strategic Petroleum Reserve? The SPR’s has a designed capacity for some 715 million barrels. Current inventory, as of April 22, 2016, is approximately 695 million barrels. Why didn’t the government “top off” the SPR by purchasing 15 to 20 million barrels of oil when prices were below $30 a barrel. Furthermore, why haven’t plans been proposed to double or triple the SPR’s storage capacity. With a purchase of 500K to 750K barrels of oil a day the government would save a tremendous amount of money. Furthermore, such purchases would have the corollary effect of helping to bring the US’s domestic oil market back in line. Also, within the next four to six years, after the oil market “balances out” and the price of oil returns to the $55-65 dollar a barrel, some of the newly expanded reserve could be sold off-at a profit for the government-in order to help pay down the national debt.

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