It's not surprising that in recent years China has been taking advantage of the low crude prices to stockpile strategic and commercial oil reserves. It's not surprising that official data - if and when authorities decide to make it available - understates said reserves. This lack of information has left oil traders, investors and the market guessing how much crude China has been storing, and how it could use the quantity to possibly swing oil demand growth estimates and oil prices.
U.S. geospatial analytics company Orbital Insight has analyzed satellite images of China's territory, applying computer algorithms and machine learning to identify and quantify crude storage tanks. Since tanks have floating roofs, the company uses algorithms to detect the shadows on the roofs and calculate how full a storage facility is.
Orbital Insight has found that there were 2,100 commercial and strategic petroleum reserve tanks across China, with capacity to store 900 million barrels of oil as of the end of 2014. That's four times more than the 500 tanks reported in the industry standard database of tank farms at TankTerminals.com, Orbital Insight says.
The U.S. company's latest estimates show that China had around 600 million barrels of oil supply on its territory as of May 2016-and that's not counting underground storage.
Although the figure is higher than estimates, some analysts seem unsurprised. Michal Meidan, an analyst with London-based consultancy Energy Aspects, told Bloomberg that her estimate was over 400 million barrels including strategic and commercial stocks, but she was not surprised at Orbital Insight's figures. Related: Oil Rig Builders Tap Into Offshore Wind Market
"There is more storage available in China than the market is willing to acknowledge," Meidan says.
Since China is not keen on sharing updated data on its oil inventories, be it strategic or commercial, geospatial analytics may be a source of information that could be quite valuable to the oil market.
It was only last month that China decided to report strategic inventory reserves as of January 1 of this year: 31.97 million tons, or between 33 and 36 days' worth of China imports. The figure was more than analysts had anticipated, and no one knows for sure how much China has been stockpiling since.
Early last year, China had plans to increase its strategic petroleum reserves (SPR) from 30 days to 90 days. According to Reuters, some 90 days of imports are equal to around 600 million barrels.
That's the amount that Orbital Insight's geospatial analysis has revealed. The U.S. company's algorithms and data do not differentiate between strategic and commercial reserves. But in view of the lack of regular official and reliable data, it's a source of data anyways.
And it shows that China continues to amass crude oil supplies. Related: Is The Glut Coming To An End? Cushing Stocks Fall To 10 Month Low
"China seems to be building tanks and filling them fast-and building more tanks just as fast or even faster," Orbital Insight's CEO James Crawford told Newsweek last week.
At the pace at which China is piling up inventories, analysts see it as a 'wildcard factor' in determining oil prices, even if OPEC's much-discussed-little-specific deal on output cap were to materialize later this year.
"Now that China has bought so much cheap oil to fill their SPR…if OPEC does freeze and tries to bring the price back up, China may push it back down because they might choose not to buy it at a higher price and just choose to use their SPR or start exporting it themselves - like they did with other commodities," Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, said at an S&P Global conference last week, according to CNBC.
According to Orbital Insight oil data, China has the leverage to do so.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
Furthermore, oil distribution from the reserves to processing currently would require 13 days. From the date the President issued the executive order calling for distribution from the reserves whatever oil pumped would require another 13 days to reach processing facilities. This timetable should be cut back to not more than 30-36 hours, a day to a day and half.
The SPR is a national resource which has and still is being ignored. The US has sat on its laurels, had become spoiled with respect to oil and oil production. People forget, the difference between oil surplus and oil shortage is merely a matter of a few hundred thousand barrel of oil which could "disappear" within a matter of days.
We should not be left behind the curve on this issue.