Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Why China Is Really Dictating the Oil Supply
By Rakesh Upadhyay
Oil Price, Al-Jazeerah, CCUN, May 13, 2016
|Chart showing China steps up
crude oil imports in 2016
Ship tracking data
from Bloomberg shows that 83 supertankers carrying around 166 million
barrels of oil are headed to China, which has stockpiled an impressive
787,000 barrels a day in the first quarter of 2016—the highest stockpiling
rate since 2014.
While the world was speculating about oil prices
plunging to $20 and $10 per barrel, China was busy stockpiling its
The chart below shows an increase in imports as crude
prices collapsed. Since the beginning of this year, China has imported a
record quantity of oil.
Back in January 2015,
Reuters had reported that China planned to increase its strategic
petroleum reserves (SPR) from 30 days to 90 days. In January 2016, it was
revealed that China was building
underground storage to complement its above-ground storage tanks.
The Chinese urgency points to two things. China believes that crude
oil prices will not remain at the current levels for long, and that a
disruption is possible due to geopolitical reasons, which can propel oil
As a net importer of crude, it is protecting itself
against a black swan event and using the current low prices to fill its
tanks. The filled up tanks will ensure a steady supply of crude for at
least three months in case of a disruption.
Does the record buying
spree by the Chinese indicate a bottom in crude oil prices?
is difficult to conclude, but it does put a floor beneath the current
lows, because in all likelihood, China will resume its record buying and
top up its SPR if prices tank.
The total Chinese imports in March
via the very large crude carriers was 7.7 million barrels a day. Other
than the supertankers, China also imports oil through pipelines and small
The Chinese demand doesn't show a huge uptick
corresponding to the rise in imports.
JP Morgan estimates that in March, the total demand for oil in China
was 10.3 million b/d, down 2.5 percent over the previous year and down 2.3
percent month on month, whereas the chart shows that imports are higher
compared to the same period last year.
Crude oil prices have been
on an upswing this month. The import data coming out of China for April
will give a clue as to whether the Chinese demand remains intact at higher
crude prices or the imports drop when prices rise.
If the demand
drops following a rise in prices, we can assume that China doesn't believe
that the price rally will be sustained. At lower levels, Chinese buying
might become a factor in deciding the bottom, as their increased imports
will reduce the glut.
Similar to Saudi Arabia, which is a swing
producer, China is acting like a swing consumer. However, as China doesn't
report its storage data, it is difficult to estimate how long this trend
Though other factors were involved in encouraging
the bulls to buy at lower levels, the increased demand from China also
helped in lapping up the excess production. If their imports drop, the
world will return to the supply glut and oil prices will retrace back to
the lower $30 s/b.
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