Page 7 - MEOG Week 15

MEOG CommentAry MEOG
Filling the tanks
As part of its recovery, China, the world’s big- gest oil importer, is reportedly gearing up to fill its SPR with cheap crude. Bloomberg quoted unnamed sources on April 2 as saying that the central government has directed its agencies to co-ordinate the stockpiling quickly and that in addition to state-owned reserves the govern- ment might look to use commercial storage space.
The newswire added that the initial target was to hold government stockpiles equivalent to 90 days’ worth of net imports, before eventually expanding this to 180 days once commercial reserves are factored in.
The sources added that the government intended to announce a fourth wave of new SPR facilities. The government’s last official figure for its SPR levels was in December 2017, when it said stockpiles stood at 37.73mn tonnes (276.56mn barrels), but National Energy Administration (NEA) head of development and planning li Fulong said in September 2019 that country had around 80 days’ worth of oil in its SPR and com- mercial stockpiles. Recent estimates suggest the government has access to around 792mn bar- rels. Wood Mackenzie said on March 23 that oil stored in both SPR and commercial facilities could climb from an estimated 900mn barrels in storage in 2019 to 1.15bn barrels this year, equiv- alent to 113 days of imports.
Bloomberg reported on April 8 that India had also committed to filling its SPR with cheap oil. Unnamed officials told the newswire that the
move served two purposes – taking advantage of the oil price crash while also serving as a show of support for international efforts to stabilise the oil market.
India’s oil storage capacities are small, how- ever, amounting to just 5.33mn tonnes (39mn barrels). State-owned PetroVietnam has also said it will seek to import oil for storage while prices are low.
What next
Oil importers can only store so much oil before they run out of space, with some Chinese refiners reportedly being on the verge of this in February. While the country is lifting its lockdown there are two factors that could undermine domestic demand.
First, Chinese export-orientated industries will struggle to ramp up to full capacity until lockdowns in other parts of the world are lifted. Second, while social-distancing measures have been eased, they could easily return if the num- ber of new COVID-19 cases begins to rise.
China’s public attractions were very busy in the immediate wake of the restrictions being lifted this month. Hong Kong experienced a sim- ilar situation in mid-March and had to reinstate restrictions after the number of new infections began to climb again.
If oil production is not cut severely then it will not be long until strategic and commercial reserves are full, at which point the next price crash could even see crude benchmarks trading at single-digit figures.™
Week 15 15•April•2020 w w w . N E W S B A S E . c o m P7