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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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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.