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China builds 100-day supply of crude |
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by: Jeannette Rohn Showalter, CFA
February 15th, 2012
Which way crude? Ask China. Probably most US citizens are tired of hearing, “China this, China that.” But that is just the way it is and will continue to be for a longgggg time to come. China has great demand for crude related to a multi-stage, crude stock piling program. It is building strategic petroleum reserve (“SPR”) of a 100 day supply.
China is the second largest consumer of crude and China still has a huge infrastructure build out to complete and is only in the early stages of consumers buying cars and trucks. That is (oil price) scary enough but beyond that element of demand, China is a buyer of crude to fulfill its strategic petroleum reserve’s (“SPR”) multi phased plans.
Per February 10th’s WSJ The Source, “China will finish building new oil stores with capacity of 79 million barrels this year (2012), the IEA said. If it were to fill these gradually over the year it would add 220,000 barrels a day to oil demand, equal to the amount the IEA just trimmed from European oil demand.”
Not all think China’s incremental demand for crude for stock piles will be so low: a Goldman Sach’s report suggests, “If prices were to weaken considerably, China’s purchases could increase by a multiple of that 220,000 barrel a day figure.” (WSJ; The Source)
Everyone would like to have more information on China’s SPR, but this non-disclosure is akin to China’s secrecy surrounding grains, gold and copper ( See my commentary February 1, 2012 “China’s Little Black Book”) “Unfortunately, the Chinese government doesn’t provide data on its strategic stockpile program and the available information is sometimes contradictory” per a Goldman Sachs analyst. (The Source)
China’s SPR was merely talk in 1993; became plans by 2001 and was being built by 2004. The project will span until 2020 and will be accomplished in stages. 102 million barrels of storage was completed in stage one (now complete); 169 million barrels in stage two; and 169 million barrels by stage three. (See July 8, 2010 Energy Tribune, “Strategic Petroleum reserve In China” for one of few articles covering such.)
With Europe coming off Iranian crude, Iran is thought to be striking a deal with China to take its crude…and betcha’ China will do so at better prices as they do seem to ignore human rights issues and rogue country nuclear policies so long as they can amass more of the world’s natural resources. They play capitalism with a rule book different than ours and with different world goals.
No question that crude could fall in price. No question that many assets correlate with the S&P in an equity crisis and in 2008 crude went down with the worst of them… but this time around, there might be meaningful support for crude as China could use price declines as opportunities to fill its SPR.
Crude closed at $101.98 on Valentine’s Day. It kissed the $100 resistance for many a week prior, crossed $100 last week and now seems to be holding.
Crude is traded in the Bald Eagle Survival Plan, Mini Survival Plan, and Diversified Commodity Basket.
Crude Oil Chart
Regards, Jeannette Rohn Showalter, CFA
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