China is hoarding crude at the fastest rate since the Beijing Olympics four years ago as the slump in international prices prompts it to import unprecedented volumes even as refining slows.
The world’s second-biggest oil consumer built up a surplus of about 90 million barrels of crude in the first five months of the year, government data show. The excess, the most since the run-up to the 2008 games, is probably being kept at emergency and commercial storage centers, according to the International Energy Agency. London’s Brent oil slid the most in more than three years in May.
China, which imports more than half its crude, is constructing about 200 million barrels of storage capacity in the second stage of a plan for strategic reserves to help it manage price swings. Overseas purchases rose to a record last month even as processing by refiners including China Petroleum & Chemical Corp. and PetroChina Co. slackened.
“The only thing that can explain this is stockpiling,” Neil Beveridge, a senior analyst at Sanford C. Bernstein & Co., said in a telephone interview from Hong Kong. “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.”
Brent crude, a benchmark grade for more than half the world’s petroleum, tumbled 15 percent in May, the biggest decline since December 2008, on speculation Europe’s debt crisis will derail the global economic recovery and curb fuel demand. Futures for August settlement gained 44 cents to $97.61 a barrel today on the ICE Futures Europe exchange in London.
Prices surged in the first quarter on concern that Middle East supplies would be disrupted amid tighter international sanctions on Iran. Brent traded at $128.40 a barrel on March 1, the highest level in almost four years, after a report of an explosion at an oil pipeline in Saudi Arabia, the world’s biggest exporter of crude.
China’s imports rose 10 percent to a record 6 million barrels a day in May compared with April, customs data showed June 10. Oil refining was little changed at 9.1 million barrels a day, after falling the previous three months.
The crude surplus, or net imports and domestic production minus the volume of oil processed in refineries, was 4.4 million metric tons in May, or more than 1 million barrels a day. The surfeit averaged about 591,000 barrels a day in the first five months of this year, or almost 90 million in total, according to data compiled by Bloomberg.
That’s the highest level since China added 99 million barrels of crude in the first five months of 2008, as refiners increased stockpiles to ensure supplies during the Olympics.
While this year’s excess may partly reflect demand for crude to burn in power stations and unreported consumption by refiners, “some of this is likely also to represent crude-oil flows into strategic storage,” the Paris-based IEA said in its monthly Oil Market Report on June 13. “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.”
Additional imports may be offset by slowing consumption in China, which accounted for about half of global crude-demand growth last year, as the economy cools, according to China National Petroleum Corp., the nation’s biggest oil company, and JBC Energy GmbH, a Vienna-based consultant. The nation’s gross domestic product will grow 8.2 percent this year, down from 9.2 percent in 2011, the median estimate of 22 economists surveyed by Bloomberg News last month shows.
Chinese oil demand may increase by an average of 340,000 barrels a day this year, compared with 470,000 last year, Alexander Poegl, an analyst at JBC in Vienna, said by e-mail. Consumption in April slid by 55,000 barrels a day compared with a year earlier, according to the IEA.
“China’s oil demand will remain weak until at least the third quarter,” said Gong Jinshuang, a Beijing-based senior engineer at CNPC. “There may be a rebound in the fourth quarter if the government’s stimulus measures work.”
The nation’s central bank lowered benchmark lending and deposit rates by 25 basis points effective June 8, and also allowed banks more leeway to set their own interest rates. It may cut rates at least once more this year and reduce banks’ reserve requirements three times, Shen Jianguang, the chief Asia economist for Mizuho Securities Asia Ltd. in Hong Kong and a former European Central Bank economist, said June 10.
Oil demand will rise to 10 million barrels a day in the fourth quarter from 9.6 million in the second, the IEA estimated in its report, citing a “widely held belief” that the government will act to shore up the economy.
The nation has probably added enough oil to emergency stockpiles to fill two sites completed late last year under the second phase of the three-stage reserve plan, China International Capital Corp. said in a June 12 report. The centers at Dushanzi in Xinjiang and Lanzhou in Gansu province have a capacity of 38 million barrels, CNPC said in its annual oil and gas report in February. More than 50 million barrels of additional capacity will be completed in the second half of this year, according to CICC.
China, whose overseas oil purchases are second only to the U.S., plans to have stockpiles equivalent to 100 days of net imports by 2020, China Petroleum said in September 2009, citing a plan approved by the government. That’s about 600 million barrels, based on May’s imports. The U.S. held 696 million barrels in its Strategic Petroleum Reserve as of the week ended June 1, according to the Energy Information Administration.
China finished building four sites in 2009 under the first phase of the reserve that can hold about 103 million barrels. About 207 million barrels of storage capacity at eight sites will be built for the second stage, CNPC said in its February report. Third-phase facilities are still being planned.
“China will likely take advantage of falling international oil prices to keep filling its strategic petroleum reserve,” Janet Kong, an analyst at CICC in Hong Kong, said in the bank’s report. “Crude imports will likely stay high.”