China starts buying oil for state reserves after price crash

China is moving forward with plans to buy up oil for its emergency reserves after an epic price crash, according to people with knowledge of the matter.

The world’s biggest importer is taking advantage of a 60{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} plunge this year to snatch up cheaper barrels for its stockpiles, a source of considerable speculation in the oil market because of the government’s reluctance to release information about their formation, size or use.

Beijing has asked government agencies to quickly coordinate filling tanks and using financial tools like options to lock in current low prices, the people said, asking not to be identified because the matter is confidential.

In addition to state-owned reserves, Beijing may use commercial space for storage as well, while also encouraging companies to fill their own tanks, the people said. The initial target is to hold government stockpiles equivalent to 90 days of net imports, which could eventually be expanded to as much as 180 days when including commercial reserves.

China is also planning to announce the fourth batch of strategic reserve sites, the people said. The expansion project has the dual advantage of creating larger emergency reserves and as an economic stimulus project to spur construction opportunities as the country recovers from the coronavirus.

Officials at the National Development and Reform Commission, the top economic planner, didn’t immediately respond to requests for comment.

Brent crude, the international benchmark, extended gains on Thursday to rise almost 13{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} to $27.88 a barrel as of 7:08 am in London.

Before the government’s directive was made public, consultancies SIA Energy and Wood Mackenzie both estimated that China could probably add 80 million to 100 million barrels to reserves this year before it ran into logistical and operational constraints. According to SIA, China had about 996 million barrels of oil combined in strategic and commercial storage as of March 31.

In September, the head of development and planning at the National Energy Administration said the country had total oil reserves, including strategic stockpiles, for about 80 days. In December, state-owned China National Petroleum Corp. said on its website that the government intends to boost the capacity of its strategic petroleum reserves to 503 million barrels by the end of this year, an indicator of the maximum amount the government can store.

The US currently holds about 635 million barrels in its Strategic Petroleum Reserve, according to government data. A Trump administration plan to buy more oil for the national stockpiles was thwarted last month after Democrats blocked a request for funds.

Source Article