Why Is China Stockpiling Oil?


"China is taking the supply security issue more seriously than the market thought."

One thing you cannot say about the Chinese government is that they don't have a very long-term vision. This is an interesting article on Reuters about how the country has fully loaded its oil reserves and now is looking to load up ships for even more.

I also wonder what this says for worldwide demand for petrol—if China has been busy buying for no reason other than storage, one could argue that demand is in fact weaker than it appears. But who really knows—there are so many moving parts I won't hazard a guess. What it does say is when people point to the huge surge in Chinese imports or the Baltic Dry Index popping, it doesn't necessarily mean a darn thing about a pickup in demand. It simply could be a government stockpiling resources at low prices.
  • China has filled all four of its state-owned emergency oil reserve tanks to the brim and should now invest in oil tankers to add more to inventories while oil prices are low
  • Coupled with data last week showing a one-third rise in commercial crude oil stockpiles last year, the admission suggests that a large share of China's oil import growth last year was pumped directly into storage
  • The first set of China's strategic oil reserves, which can hold about 100 million barrels, were built over the past two years, but data on their status is considered a state secret and information about their operations or tank levels is scarce. China plans to build a second-phase strategic reserve that will nearly triple the first batch to 280 million barrels by 2011
  • China is taking the supply security issue more seriously than the market thought
  • The remark is consistent with recent comments by government officials that China should better use its massive foreign exchange reserve to stock up key commodities from grain to metals to crude oil, and last week Beijing announced that it would boost its budget for stockpiling resources by $10 billion.

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