China's crude oil reserves have reached a level equal to 100 days of imports, Bloomberg has reported, citing unnamed sources in the know, which is near the country's storage capacity limits.
The amount includes both strategic and commercial inventories, the Bloomberg source said.
Data compiled by oil data analytics company OilX (that is powered by local insights from SIA Energy) shows Chinese storage at close to 1.1 billion barrels and has been growing again after a decline in December 2020, with massive imports during February 2021, OilX chief executive Florian Thaler told Oilprice.com.
OilX also noted that the Chinese SPR has been full to the brim since October 2020 at around 380 million barrels. Some of the SPR effectively had to be going into leased commercial storage, the analytics firm said.
China went on an oil-buying spree last year when international prices tanked to stock up on the vital commodity. However, as inventories built up, concern emerged that the world's second-largest consumer of oil could run out of storage space, which would have hurt prices.
Yet the Bloomberg report also notes that Beijing had set itself a target for strategic reserves equal to 90 days of crude oil imports and it might continue buying.
"In terms of crude stockpiling, we believe China's goal will not stop at 100 or 120 days of reserves," analyst Mia Geng from consultancy FGE told Bloomberg. "National security is among the priorities for the coming years and this will sustain continuous stockbuilds." Related: How High Can Oil Really Go?
This should be good news for oil bulls as China remains the single most important factor in oil demand trends as the biggest importer of the commodity globally.
Earlier reports, however, have tempered optimism, suggesting the country might be nearing its peak demand level.
"While China's oil use has a strong growth potential—given that China's per capita oil use is currently around one-third of OECD levels—future growth rates will be tempered by efforts to tackle air pollution," Michal Meidan, Director of the China Energy Programme at the Oxford Institute for Energy Studies, wrote in a comment in September 2020.
In the immediate term, buying may slow down, too, as refineries are about to start spring maintenance in April.
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By Irina Slav for Oilprice.com
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China’s economy is projected to continue growing at an average 6.5% for the next few years leading to an equivalent growth of domestic oil consumption by a similar rate. The size of both SPR and commercial inventories is reported to have reached 1.1 billion barrels equivalent to 78 days of consumption based on China’s average daily consumption of 14.56 million barrels a day (mbd) in 2019 according to the 2020 BP Statistical Review of Energy. So if China's goal is to have at least 120 days of reserves and taking account of the annual consumption increase of 6%, then China's stored reserves should reach 2.09 billion barrels. This will have a huge bullish effect on global oil demand and prices.
China’s energy security is uppermost in its strategic thinking. That is why China may not stop at 120 days of reserves but will go much further.
China doesn’t officially report its SPR volume but it is estimated to be approximately 400 million barrels in total with a capacity of around 500 million barrels. However, China is reported to want 90 days reserves for its SPR equivalent to 1.27 billion barrels.
This means that China is planning or already on the way to expanding its storage capacity.
The US SPR is the largest in the world with the current capacity to hold up to 727 million barrels followed by Japan’s with a reported capacity of 579 million barrels.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London