China has been stockpiling cheap oil, but may be running out of room
China’s commercial and strategic oil storage is almost full, a Sinopec (ticker: SNP) trading executive said. The executive asked not to be named despite speaking to reporters at an industry event, reports Reuters.
China has nearly filled its strategic petroleum reserves (SPR), one of the main drivers of Asian demand since August of last year, with the nation’s importers buying cheap crude to fill oil tanks despite slowing economic growth. With storage capacities approaching their limits, China’s crude imports will likely stay flat or rise only slightly this year, the executive said.
China’s crude oil imports grew 4.5% in the first two months of the year compared to the same period a year ago, according to official customs data. In February, however, daily crude imports were down nearly 7% at 6.7 MMBOPD from a record 7.15 MMBOPD in December.
“Demand will grow, and domestic production will be flat to declining,” said Simon Powell, head of Asia oil and gas research at CLSA in Hong Kong. “Imports are what meets that incremental demand in some ways.” Powell is not convinced that China’s reserve tanks are completely topped off, saying he expects the country to continue taking advantage of low crude prices.
New commercial storage is being added in China, but it is mostly privately funded and not yet available for use, said the Sinopec executive. Storage companies in China are set to boost commercial oil tank capacity by more than 10% but are not expected to be available until later this year.
U.S. storage rising
Oil storage capacity is quickly filling in the United States as well as in China. Massive builds in crude oil inventories have filled 89.5% of the storage capacity in the Petroleum Administration for Defense Districts (PADDs) in the United States.
General consensus from the industry is that most companies are opting to sell production volumes on future strip prices, although it is impossible to pin down an accurate number. The Cushing spot in Oklahoma, the delivery point for futures contracts, is at 77% capacity – compared to a low of 27% in October 2014.
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