An oil field is seen at sunrise near Bakersfield, California October 14, 2014. Brent crude hit a new four-year low on Wednesday before recovering to just under $85 a barrel, as faltering global growth curbed demand for fuel at a time of heavy oversupply.
An oil field is seen at sunrise near Bakersfield, California October 14, 2014. Brent crude hit a new four-year low on Wednesday before recovering to just under $85 a barrel, as faltering global growth curbed demand for fuel at a time of heavy oversupply. Oil saw its biggest daily fall in more than three years on Tuesday after the West's energy watchdog slashed its forecasts for world oil demand for this year and 2015. Picture taken October 14, 2014. Reuters/Stringer

China will be doubling its strategic crude oil purchases in 2016 and in the process, many oil producers facing depressed prices can get some relief.

Beijing is expected to add 70-90 million barrels of crude to storage tanks in 2016 to build up strategic petroleum reserves (SPR), according to analysts quoted by Reuters.

The volume of oil to be acquired will be equivalent to almost two weeks of Chinese imports. It may push the country's overall oil purchases to a record high and also challenge the position of United States as the world's top importer.

“Next year, stockpiling is going to play a bigger role (in China) than this year,” Wendy Yong said at energy consultancy FGE.

Government plan

China's strategic SPR build-up is part of the government’s plan to raise oil reserves to OECD-standards (Organisation for Economic Co-operation and Development) that is 90 days of import demand. China started the exercise in 2006 in a bid to become more energy independent. On the SPR plan for 2016, there was no official comment from the government's National Development & Reform Commission despite queries, the report added.

The analysts and researchers at FGE, ICIS consultancy and Barclays estimate that China would double crude imports for the SPR facilities. They estimate the volume to be 70-80 million barrels in 2016, versus the 30-40 million barrels imported in 2015.

“There is still significant spare capacity in China's SPR, which can take in another 12 million tonnes of crude (88 million barrels),” said Yaw Yan Chong, Asia director at Thomson Reuters Oil Research and Forecasts. He said the government is apparently trying to leverage the low oil prices.

The report said six new SPR sites will be used for the program. They will have a total capacity of 146 million barrels and most of them will be filled in 2016. But many Chinese traders are sounding more cautious on such a build up and they argue for better safety outlook as the massive Tianjin port blast in 2015 was a recent incident. They believe that the new depots will take time and the target will not be easy to achieve.

“The price impact of China's SPR stockpiling is likely to be small,” Zhang Chi, Barclays analyst noted.

Zooming demand

Meanwhile, China's apparent oil demand rose by an average of 8 percent in October 2015 to 10.97 million barrels per day (b/d), compared to the same period in 2014, according to the Platts China Oil Analytics report.

Platts China Oil Analytics is an online firm that supplies trade data. Its analysts said China's oil demand will shoot up by 585,000 b/d or 5.6 percent year over year in 2015.

“We are maintaining our view that apparent demand growth in 2016 will ease to under 2 percent on the back of slowing economic growth,” Yen Ling Song, Platts China Oil Analytics senior analyst said.

The demand-growth is mainly driven by the spurting demand for gasoline, jet fuel, kerosene and liquefied petroleum gas. In October, the refinery output of China averaged 10.46 million b/d, up by 1.6 percent from 2014, according to the data from China’s National Bureau of Statistics.

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