"Preparation in advance, China is rapidly building up its oil reserves"

The U.S. "Wall Street Journal" reported on November 1 that China has spent months quickly building up its oil reserves, an action that not only helps China deal with potential risks of energy supply disruptions but also unexpectedly helped stabilize global oil prices.

Customs General Administration data shows that in the first nine months of this year, China imported more than 11 million barrels of oil per day on average, a quantity exceeding Saudi Arabia's daily production. Analysts estimate that between 1 to 1.2 million barrels per day are stored in warehouses.

The report states that China, as the world's largest oil importer, has long prioritized energy security, repeatedly emphasizing that "the bowl of energy must be firmly held in our own hands." In this context, China's decision to accelerate the buildup of oil reserves since March may be related to low oil prices and multiple attacks by Ukraine on Russian oil facilities.

China's strong demand for oil has brought another unexpected result: helping stabilize oil prices.

In October this year, international oil prices once approached the lowest level in five years. The international benchmark Brent crude price is currently around $65 per barrel, a 13% drop from the beginning of the year. After the U.S. imposed sanctions on two major Russian oil companies - Rosneft and Lukoil, oil prices rebounded.

"If China really stops buying, oil prices would soon fall to around $50 per barrel," said Michael Hegge, Global Head of Fixed Income, Foreign Exchange and Commodities Research at Société Générale.

In contrast, the U.S. has made slow progress in replenishing its emergency oil reserves, with its reserves at one of the lowest levels in 40 years. Although President Trump promised to fill up the U.S. reserves upon returning to the White House, so far he has only announced a small-scale crude oil purchase.

To reduce dependence on imported oil, China has invested hundreds of billions of dollars to restore domestic crude oil production and build the world's largest electric vehicle industry.

China began constructing strategic oil reserves in 2004. After about twenty years of development, China has built large-scale oil reserve bases in many places, including the eastern city of Zhoushan and the northeastern port city of Dalian, both underground and above ground.

China does not publicly disclose specific reserve quantities. However, analysts make rough estimates by subtracting the amount of processed oil from China's imports and domestic production. Most forecasts suggest that China's oil reserves range between 1.2 billion to 1.3 billion barrels.

"China's current strategic oil reserves and commercial inventories have already provided an effective buffer against short-term supply disruptions," Kelly Xu, a commodities and energy strategist at the global macro research firm Alpine Macro, predicted. She expects China's precautionary oil reserves to continue until 2026.

It seems that China still has sufficient storage space. Rystad Energy analyst Yelin (phonetic) pointed out that by the end of 2024, China's total oil storage capacity had increased from 1.4 billion barrels in 2015 to over 2 billion barrels, meaning that only about 60% of the capacity was used. She estimates that by the end of this year, China will add an additional 124 million barrels of storage capacity.

Analysts mentioned that despite new sanctions imposed by the U.S. on Russian energy giants, China has not stated that it will stop purchasing Russian oil.

Data released by the Chinese Customs General Administration on October 20 showed that China's crude oil imports from Russia in September rose 4.3% month-on-month to 8.287 million tons, with an import value of 4.066 billion U.S. dollars. This data indicates that despite geopolitical tensions, China is willing to maintain trade relations with Russia.

The data also shows that China has suspended purchases of U.S. crude oil since June, although the share of U.S. crude oil in China's total imports was already small.

With the progress of cross-border pipeline projects between China and Russia, their cooperation continues to deepen. China's total imports of liquefied natural gas from Russia in September saw a slight increase of 1.9% year-on-year.

At the same time, China's crude oil imports from Indonesia surged, with imports in September increasing by approximately 73 times compared to the same period last year; imports from Brazil also rose sharply by 156%, broadening China's energy supply channels.

Chinese Foreign Ministry spokesperson Lin Jian stated on the 16th that China has repeatedly expressed its position on the procurement of Russian energy, stating that normal economic and trade and energy cooperation between China and countries including Russia is legitimate and proper.

The "Wall Street Journal" also believes that, at present, China's oil stockpiling actions are helping prevent further declines in global oil prices. Despite traders and analysts generally acknowledging global crude oil oversupply, the International Energy Agency predicted in October that there was an oversupply of 3.7 million barrels per day in the current quarter. JPMorgan analysts estimated this number to be 3.6 million barrels.

OPEC and its allies have somewhat exacerbated this supply surplus, continuing to inject additional crude oil into the market. The organization plans to increase daily output by 137,000 barrels in November to reverse the production cuts implemented in 2023. At that time, energy prices fell from the high levels following the outbreak of the Russia-Ukraine conflict. At its meeting in December, OPEC is expected to announce further increases in production.

Original: www.toutiao.com/article/1847690986506243/

Statement: This article represents the views of the author.