New third-party estimates put Chinese strategic oil reserves at 600 MMBO, 366 MMBO more than official reports
The actual amount of crude oil stored in China may be significantly higher than official reports indicate, according to geospatial analytics company Orbital Insights. Using satellite imaging, the company estimates oil storage in China, the world’s largest energy consumer, was at 600 MMBO in May, 156% more than the 234 MMBO reported by the Chinese government in its most recent release, reports Bloomberg.
Orbital Insights estimates there were about 2,100 strategic and commercial petroleum reserve tanks capable of storing 900 MMBO as of the end of 2014, not including underground caverns. China’s reserves totaled 31.97 million tons – equivalent to about 234 MMBO – in early 2016, the National Bureau of Statistics said in a report this month.
“I’m not surprised,” Michal Meidan, an analyst with London-based consultancy Energy Aspects, said of Orbital’s estimate, adding that her number is over 400 million including both strategic and commercial stocks. “There is more storage available in China than the market is willing to acknowledge. There seems to be quite a bit of flexibility between commercial strategic storage tanks, even though official statistics do not account for all of it.”
A hidden source of demand in China
Because of the opacity of the Chinese system, it is difficult for markets to get an accurate read on just how much oil China is purchasing for its reserves. Analysts and traders rely on customs figures and infrequent construction updates to estimate how much of the country’s imports go into strategic inventories.
“China’s overall storage is about 60 percent full, “and it’s probably actually less than that because there’s probably a fair amount of new capacity since the end of 2014 that’s not yet included,” said Orbital CEO James Crawford, a former NASA scientist and Google engineer who founded the company. “It’s definitely higher than Chinese official estimates. There are some slightly higher numbers for [strategic petroleum reserves], and there are some folks who feel the Xinhua numbers may slightly understate the commercial.”
As China continues to take advantage of low oil prices, its desire to fill its reserves could help to fuel demand growth. In a conference call yesterday, Wolfe Research characterized China’s storage demand for oil as “hoarding,” not storage.
Asian refiners struggling
Despite the potential upside for demand to fill China’s crude oil storage, Asian refiners have been struggling through the downturn, and things may get worse following OPEC’s decision to try and reach an agreement to cap production earlier this week. With an already oversupplied products market, and OPEC members softening their stance on their battle for market share, Asian refiners may not enjoy the same discounts they have seen on crude materials over the last year.
Saudi Arabia offered a discount of $1.10 a barrel for its Arab Light crude to Asian buyers in September, compared with a premium of $3.75 in January 2014 before prices started to crash. Iran’s benchmark light oil, which was at a $3.96 premium in January 2014, was at an 85 cent discount this month.
“In the event an OPEC production cut materializes, we think it could be negative for Asian refiners due to the potential reversal of crude discounts they enjoyed as OPEC producers fought for market share,” Goldman Sachs Group analysts wrote in a note. “Higher oil prices eventually put sustained pressure on product demand while costs to run the refinery escalate.”
