China Petroleum & Chemical Corp signage is displayed on one of the company’s storage tanks in the Tsing Yi area of Hong Kong. China is emerging as the winner from Opec’s battle with rival oil producers as the world’s biggest energy consumer stockpiles crude.

Bloomberg

Beijing

China is emerging as the winner from Opec’s battle with rival oil producers as the world’s biggest energy consumer stockpiles crude.

The nation’s efforts to boost reserves may increase its imports by as much as 700,000 barrels a day in 2015, according to London-based Energy Aspects Ltd. That’s more than half the global glut forecast by Citigroup Inc after the Organisation of Petroleum Exporting Countries refrained from cutting output at its meeting last week. Brent crude has slumped 41% from its peak in June.

The dwindling number of investors still betting on a rebound in prices can at least count on Chinese demand. Opec decided to maintain output targets even as a shale boom boosts US production to the highest in more than three decades and causes a global supply glut. As crude extends its slump to the lowest level in more than four years, China is seeking to build a strategic petroleum
reserve.

“This is a golden time window to acquire more strategic oil stockpiles at lower costs,” Gordon Kwan, the Hong Kong- based head of regional oil and gas research at Nomura Holdings Inc, wrote in an e-mail on November 28. China will be “a big beneficiary” from the Opec decision, he said.

China boosted imports by 8.3%, or 460,000 barrels a day, in the first nine months of this year, the fastest pace since 2010, customs data show. The country will overtake the US as the world’s biggest oil consumer within two decades, according to the International Energy Agency in Paris.

Opec will keep its production target at 30mn barrels a day, signalling it won’t adjust supply to influence prices, instead preferring to maintain market share amid the unprecedented shale boom. Citigroup estimates the global oversupply will almost double to 1.3mn barrels in the first half of next year, according to a November 27 report.

Benchmark oil prices have plunged 40% from a June peak, the worst decline since the collapse of the financial system in 2008. That’s threatening to have the same global impact of falling prices three decades ago that led to the Mexican debt crisis and contributed to the end of the Soviet Union. The speculative net-long position, or bets on rising prices, in US crude futures tumbled 51% since June, as investors lost faith in Opec’s willingness to act. Short positions expanded more than threefold over that period, US Commodity Futures Trading Commission data show.

While China currently holds reserves equivalent to about 30 days of imports, the government is seeking to boost that level to 100 days by 2020, according to China Petrochemical Corp, Asia’s biggest refiner. That would be the equivalent of about 570mn barrels, based on the most recent monthly imports.

“We know that China has already been taking advantage of lower prices to fill the SPR,” Simon Powell, the head of Asian oil and gas research at CLSA Ltd in Hong Kong, wrote in an e- mail Nov 28. “They still have a long way to go.”

China is buying more oil even as its economic expansion slows. Gross domestic product will grow 7.4% this year, the weakest pace since 1990, and 7% in 2015, according to the median of as many as 56 economists surveyed by Bloomberg.

The world’s second-biggest economy consumed the largest volume of oil on record in October, according to data compiled by Bloomberg.

Slumping prices will “push China to expedite its emergency reserve program,” Gao Jian, an analyst at Shandong, China-based consultant SCI International, said by phone November 28.

West Texas Intermediate fell as much as $2.43 to $63.72 a barrel in electronic trading on the New York Mercantile Exchange, the lowest intraday level since July 2009, and was at $64.19 at 4:23pm. Singapore time. Brent dropped 2.8% to $68.17.

China National United Oil Co in October bought a record 23.5mn barrels of Middle East crude on a Singapore trading platform. The unit of the nation’s biggest energy company may be helping build stockpiles for commercial or strategic purposes, according to Victor Shum, a Singapore-based vice president at IHS Inc, an industry consultant.