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Chinese SPR fills on the wane?

Published Tuesday, June 7th, 2016

China has done much to underpin global oil demand in recent years. This year however marks an important transition in which the rate of growth in Chinese domestic oil consumption will be overshadowed by that of India’s. The extent of this slowdown is made clear by figures from the IEA which reveal that China’s thirst for oil is expected to rise by 350,000 bpd this year – half the rate seen in 2015. Offsetting this softening in oil demand growth has been one consistent bright spot. China’s oil purchases for its strategic petroleum reserves (SPR) are not reflected in domestic oil consumption figures but have risen steadily and initial signs are that the pace of stockpiling so far this year has been widely underestimated.

The uptick in Chinese strategic oil fills has been coupled with a significant increase in crude imports as falling domestic oil production forces Beijing to increase its dependency on foreign oil producers. Oil imports stood at 6.7 mbpd last year and have averaged 7.46 mbpd in the first four months of 2016. The headwind provided by teapot refineries which may see their total crude import quota rise 800,000 bpd to 2 mbpd by year-end could send Chinese crude oil imports above the 8 mbpd mark during the second half of the year. Taking into account steady domestic crude run rates, falling production and rising oil imports, a conservative estimate of year-to-date strategic oil purchases would be 400,000 bpd, while others have put it as high as 800,000 bpd. This represents a sharp upward revision to initial predictions that the rate of Chinese strategic oil fills would double this year to 250,000 bpd.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.