World’s biggest energy consumer China is mounting up stockpiles of crude oil as global prices fall due to the coronavirus outbreak.
Imports rose 4.5% in March over a year earlier even as the world’s second-largest economy shut down to fight the virus and demand collapsed. For the first quarter of the year, imports were up 5% according to sources.
The price fall is hitting MENA state-owned oil producers and is disturbing official plans to develop the industry but is a boon to Chinese drivers and factories. It gives Beijing a chance to add to a strategic petroleum reserve that is meant to protect the country against possible supply interruptions.
“In the midst of all this, China oil imports have been consistent, as low prices have enabled stockpiling,” said Peter Lee, senior oil and gas analyst for Fitch Solutions.
As global prices fell, Chinese merchants sent 84 tankers to Saudi Arabia in mid-March, each able to carry 2 million barrels of crude, according to news reports that cited the China Shipbuilding Industry Association.
Low oil prices “have a positive impact on China,” said the ruling Communist Party’s Political and Legal Commission on its social media account.
The Cabinet’s National Energy Administration reported in September that total reserves held by the government and oil companies were equal to 80 days of consumption. The official reserve stands at about 385 million barrels, according to Lee of Fitch Solutions.
If enough supplementary storage capacity is built, the government might import 500,000 to 900,000 barrels per day for the strategic reserve, or 5% to 9% of China’s total foreign purchases, according to Lee.
The government reserve uses three tank farms and state media say a fourth might be under construction. The energy administration referred questions to the Cabinet’s planning agency, the National Development and Reform Commission.
The Communist Party commission said the plunge in prices gives Beijing a unique chance to build up that reserve but gave no indication the government was doing that. The strategic reserve and private suppliers had filled up at least 85% percent of their total storage capacity by February and added more oil in March. The space that is left might be filled up with crude bought earlier at higher prices that Chinese buyers are forced to accept even though they had no customers.
Cheaper crude is one of China’s few economic bright spots in the coronavirus pandemic. The economy suffered its worst contraction since the mid-’60s in the first quarter, shrinking 6.8% from a year earlier after Beijing closed factories and told some 800 million people to stay home.
China has depended increasingly on imported oil and gas since the late 1990s as manufacturing, car ownership, and airline travel boomed. Imports make up about half of consumption. Half of that comes from the Middle East and the rest from Russia, Southeast Asia, and Africa.