China’s oil inventory hits four-year low ahead of OPEC meeting

Bloomberg News 11/1/2021

(Bloomberg) --China may be forced to start buying crude at elevated prices to replenish its thinning crude stockpiles, adding more pressure to a nation that’s facing energy shortages and seeking to avert a diesel crisis.

Commercial and strategic oil inventories have shrunk to the lowest level since November 2018 in terms of filled capacity, according to data analytics company Kayrros, which tracks supplies at about 190 terminals. China attempted to cool prices this year by releasing crude reserves, but that had little impact, and only exacerbated the steady decline in overall stockpiles.

“The level looks as low as it can go and refiners may start restocking from here,” said Yuntao Liu, an analyst with Energy Aspects Ltd. in London.

Oil has rallied this year as the market tightened following a rebound from the Covid-19 pandemic, driving crude to multiyear highs and making restocking of inventories less attractive. There’s been little respite for buyers, with a global energy crunch adding extra demand and OPEC+ taking a cautious approach to easing supply curbs. The cartel meets to discuss production policy on Thursday.

For China, shrinking oil stockpiles are another headache. It’s already juggling shortages of coal and natural gas that’s led to power rationing and crimped economic output. Some fuel retailers have also been forced to limit diesel volumes to customers as the nation seeks to avoid another energy crisis.

In a related move, China announced the release of diesel and gasoline reserves to ease supply shortages as part of an annual rotation, the National Food and Strategic Reserves Administration said in a statement on Sunday.

China doesn’t publicly disclose the size of its vast crude inventories, but a number of companies use tools such as satellites to estimate supplies. Kayrros forecast commercial and strategic stocks have slid about 10% since mid-March to around 919 million barrels. Ursa Space Systems and Kpler, which use slightly different methodologies, see stockpiles at the lowest since February 2020.

Refiners are likely to restock their inventories at a more measured rate given crude prices are now exorbitantly high, said Serena Huang, lead market analyst for Asia at Vortexa Ltd. Global benchmark Brent is near the highest level since 2018, while West Texas Intermediate has climbed to a 2014 high.

Drawing Down

China’s state-owned oil companies have already increased crude purchases over the past two months to replenish commercial inventories, despite stronger oil prices, said Samuel Kong, a senior analyst at industry consultant FGE.

“Several months of drawdowns have largely depleted their inventories, prompting them to increase imports to maintain a certain level of crude stocks,” he said. “We could see purchases for stockpiling picking up in the coming months when crude prices are expected to ease.”

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