Why Is China Stockpiling Oil?

[5711-Marine]

http://seekingalpha.com/article/1249...le_lb_articles

One thing you cannot say about the Chinese government is that they don't have a very long-term vision. This is an interesting article on Reuters about how the country has fully loaded its oil reserves and now is looking to load up ships for even more. I wonder what we are doing... ah yes, that whole bank thing. One good thing about a near dictatorship is if you have the right people in charge at least you don't have to do this whole consensus building stuff.

I also wonder what this says for worldwide demand for petrol - if China has been busy buying for no reason other than storage, one could argue that demand is in fact weaker than it appears. But who really knows - there are so many moving parts I won't hazard a guess. What it does say is when people point to the huge surge in Chinese imports or the Baltic Dry Index popping, it doesn't necessarily mean a darn thing about a pickup in demand. It simply could be a government stockpiling resources at low prices.

* China has filled all four of its state-owned emergency oil reserve tanks to the brim and should now invest in oil tankers to add more to inventories while oil prices are low, a senior industry executive said on Monday in a rare acknowledgment of Beijing's secretive oil inventories.
* Coupled with data last week showing a one-third rise in commercial crude oil stockpiles last year, the admission suggests that a large share of of China's oil import growth last year was pumped directly into storage, and could be relied upon quickly to soften any demand recovery or if prices should rise.
* It also backs up speculation that the world's No. 2 energy user has been making good use of oil's $100 price fall to boost supplies while demand falters in an unfolding economic crisis.
* The first set of China's strategic oil reserves, which can hold about 100 million barrels, were built over the past two years, but data on their status is considered a state secret and information about their operations or tank levels is scarce. China plans to build a second-phase strategic reserve that will nearly triple the first batch to 280 million barrels by 2011, and industry executives have said the current storage capacity has already become a hurdle to bringing in more imports.
* China is taking the supply security issue more seriously than the market thought, says Yan Kefeng, Beijing-based senior oil analyst with Cambridge Energy Research Associates (CERA). "We expect China's oil stockpiling to reach a peak in 2009, and continue into the next year," Yan said, but did not give an estimate on the volume of stockbuild he expected.
* The remark is consistent with recent comments by government officials that China should better use its massive foreign exchange reserve to stock up key commodities from grain to metals to crude oil, and last week Beijing announced that it would boost its budget for stockpiling resources by $10 billion.
* China should act quicker to boost storage capacity as its import dependence is set to surge in the coming decade. "Floating storage bases are a good idea because China needs to do everything to boost reserves," Lin said.

Now if you are a bull on the Chinese economy this is the one line that should give you pause

* Together with record high stocks of gasoline and diesel accumulated ahead of last summer's Olympics, the stockbuild also meant Chinese oil demand may have slowed more than it appeared.

I cannot find the ABC News piece, but it was out about 6 months ago - it is striking how China is locking up natural resources throughout the world with "partnerships"; specifically this hour-long program was about how China is building out infrastructure (spend now) in Africa in return for access to those country's natural resources. Folks, this is our competition the next 50+ years... we, on the other hand, don't think out past one election cycle. If you have time, here is a lengthy piece called

The Age of the Dragon which is similar to what I saw on ABC

China is conquering Africa as it becomes the preferred trading partner of the continent's dictators. Beijing is buying up Africa's abundant natural resources and providing it with needed cash and cheaply produced consumer goods in return.

[LittleRedToyota]

yes...our preoccupation with the short-term while ignoring the long-term eventually will do us in in the long-term. there is no way it cannot--there are too many areas where what is good in the short-term and what is good in the long-term are in direct contradiction to each other.

our political leaders are short-sighted. our business leaders tend to be short-sighted. in both cases, though, it is ultimately our own fault.

politicians who make sacrifices in the short-term for the good for the good of the long-term tend to not be re-elected.

business leaders of publicly traded companies who make sacrifices in the short-term for the long-term good of their companies often see their stock prices drop (as everyone puts way too much emphasis on every quarterly earnings report these days) and, as a result, get fired.

it will not be fixed until the american people become less short-sighted...or have less say in government and the businesses they own via stocks--both of which are unacceptable "solutions", so...

somehow we have to get the american people to focus on the long-term again. i have no idea how. ironically, though, this whole economic meltdown might be just what we need to shift attitudes...assuming we make it through it.

(btw, china's government policies are driven by job creation...as opposed to overall profitability or economic efficiency. they are buying up natural resources so that they can continute to create jobs--even if they are not actually needed--in the future. this is how they keep the chinese people placated and hold onto power. and, of course, they are thinking about creating jobs 25 years from now as much as they are thinking about creating jobs tomorrow.)

[camper]

Oil is used in the production of lots of things, not just for energy needs.

It's simple: When prices of a product are high due to a shortage of a necessary ingredient, and you posess massive quantities of that ingredient, you could undercut EVERYONE who is competing with you, and drive them out of business once and for all. Then charge whatever you want because there is little if any in the way of competition.

camper

[phillyd2]

Hmmm, wonder why any country would do something as sinister as that.....

http://www.fossil.energy.gov/programs/reserves/

[Wild Bill Klinton]

Oil is now cheap. I would be too.

[ehidle]

If you don't realize China is preparing for a military conflict, you're not paying attention.

[LittleRedToyota]

If you don't realize China is preparing for a military conflict, you're not paying attention.

sure...but not versus the USA.

[ira82]

sure...but not versus the USA.

No but it will be against japan or taiwan our allies whom we swear to protect.

[wa3ra]

Depends on who pisses them off more first...India or Russia.

[ehidle]

sure...but not versus the USA.

I think any conflict involving China is also going to involve the USA. We cannot function without parts from China. China is the only place left on Earth that makes passive electronic components that we need for our military to survive (not to mention the rest of the tech industry).

If China is threatened, we will be forced to come to their defense. The only exception would be if China were to escalate against us, which they have threatened on a number of occasions (although it is mostly saber rattling). We would definitely lose a conventional war with China for the aforementioned reasons. However, China would then be sitting on over a trillion worthless US dollars. That's their only incentive not to start with us.