A dark haze shrouds Beijing's downtown July 22, 2009. One of the serious negative consequences of China's rapid industrial development has been increased pollution, smog, and degradation of natural resources. (UPI Photo/Stephen Shaver) | License Photo
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.
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.
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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