China Stockpiling Oil At Record Rate

China, the world’s second largest consumer of oil, has been building up its oil reserves at a rate not seen since 2008, reported Bloomberg News on Thursday, as the country embarks on the second stage of a plan for strategic reserves in order to manage price swings.

China, the world’s second largest consumer of oil, has been building up its oil reserves at a rate not seen since 2008, reported Bloomberg News on Thursday, as the country embarks on the second stage of a plan for strategic reserves in order to manage price swings.

According to official data from Chinese government statistics, China managed to acquire a 90 million barrels surplus of crude in the first five months of the year alone, with a slump in international prices said to have sparked a hoarding spree.

The country is also presently constructing about 200 million barrels of additional storage capacity that will enable it to have stockpiles equivalent to 100 days of net imports by 2020, said a statement released by China Petroleum in 2009.

Though third-phase facilities are still being planned, China should be able to store up to 600 million barrels of oil once the second stage of constructions are completed. This will allow them to be the second largest hoarder of crude oil in the world, behind the U.S. who currently hold 696 million barrels in its Strategic Petroleum Reserve.

[quote]“China will likely take advantage of falling international oil prices to keep filling its strategic petroleum reserve,” said Janet Kong, an analyst at CICC in Hong Kong. “Crude imports will likely stay high.”[/quote]

“Were China to fill new storage capacity steadily over the course of 2012, that could add 150,000 to 200,000 barrels a day to underlying demand,” added the International Energy Agency in its Oil Market Report on June 13.

The news though comes amidst reports of declining demand for oil in the country. Alexander Poegl, an analyst at JBC in Vienna, told Bloomberg that Chinese oil demand would only increase by an average of 340,000 barrels a day this year, compared with 470,000 last year.

Other analysts however say that the recent stockpiling could be to compensate for long-term demand, with the IEA estimates predicting that oil demand will rise to 10 million barrels a day in the fourth quarter of this year, compared to f 9.6 million in the second.

There is a “widely held belief” that the government will act to shore up the economy, said the IEA in its report.

Related: China Has Just Stopped Exporting Oil (and the Sh*t is Hitting the Fan)

Related: Iraq Oil: China Wants Iraqi Oil Fields – Even if They Lose Money

Related: How China Can Rebalance Its Economy: Michael Pettis

Neil Beveridge, a senior analyst at Sanford C. Bernstein & Co., added that the recent drop in demand would not factor in to the government’s strategy for reserves, particularly with the threat of volatile oil prices.

[quote]“It’s inevitable that China, which is behind the curve in stockpiling, will try to build up and the drop in crude prices will only make them want to keep on buying. It is some form of support for oil,” Beveridge said.[/quote]