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If Its Growth Is Slowing, Why Is China Stockpiling Oil?

By Ellen R. Wald, Ph.D.Market OverviewMar 08, 2016 04:57AM ET
www.investing.com/analysis/the-china-paradox-200120785
If Its Growth Is Slowing, Why Is China Stockpiling Oil?
By Ellen R. Wald, Ph.D.   |  Mar 08, 2016 04:57AM ET
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By all accounts China’s industrial growth is slowing down. GDP only grew 6.9% in 2015, the weakest growth in 25 years. Industrial output rose less than 6%. Slower growth should indicate a corresponding deceleration in energy use, particularly petroleum. But, in fact, China’s petroleum purchases are increasing. Overall, Chinese demand for oil grew 1.5% in 2015, and in December, 2015, the Chinese imported more crude oil than ever before. China National Petroleum Corp. (CNPC) even forecasts continued demand growth in 2016. The question, is why?

One possibility is that overall transportation is rising in China. As China transitions from an industrial-manufacturing based economy to a consumer based economy, citizens begin to travel more. Indications are that Chinese citizens are viewing car purchases more favorably, and the Chinese government is offering tax breaks that seem to be encouraging individual car purchases. An increase in car ownership translates to an increase in gasoline demand, which the Chinese could be preparing for with increased crude oil imports.

Another possibility could be the abnormally cold winter that China is experiencing this year. It is possible that the Chinese are using the fuel in a heating capacity.

The most likely two causes of China’s increased oil demand, however, are the 5.3% jump in refining output and crude oil storage. Chinese refineries, particularly independent refineries known as “teapots,” accounted for part of the increase in crude oil imports in 2015, as the Chinese government recently allowed these refineries to purchase crude oil on the global market rather than through government contracts. It seems as though the majority of these refined products are exported rather than used domestically.

In addition, China has been actively increasing its stockpiles of crude oil. According to Chinese officials, China has more than doubled its crude oil stockpiles in the past year and is in the process of building more storage facilities to again double that amount by 2020. Whether China is preparing to meet future military demands or simply stocking up when prices are low in anticipation of greater consumer demand in the future is still unknown.

What do you think the Chinese are doing with all that oil? And if they are storing it, is it for a rainy day or something in particular? Submit your thoughts in the comments section.

If Its Growth Is Slowing, Why Is China Stockpiling Oil?
 

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If Its Growth Is Slowing, Why Is China Stockpiling Oil?

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Mar 11, 2016 6:01AM ET
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surf this blog.donaldbradley.wordpress.com.nice analysis in advance of financial markets
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dan mat
dan mat Mar 10, 2016 8:37AM ET
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Due to the large oil price fluctuation, it may be like a gold mine without the hussle. You can double the money in a year, or even triple it in 2. I know smart people buy when a product is cheap and sell when the price is high. Chinese are not stupid. They use the money they make, the best they can.
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Elon Kim
Elon Mar 09, 2016 10:13PM ET
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Money in China has no place to go; therefore, people who have money buy oil and gold to reduce risk. possibilities? come on yo!
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Kaveh Aahangar
Kaveh Aahangar Mar 09, 2016 9:09AM ET
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I only know one thing "Chinese are cleaver people and they know what they are doing".
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Joe Bucks
Joe_Bucks Mar 09, 2016 9:09AM ET
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They might be clever but they are slow. They plan years ahead. If they had to get that crucial, maybe the most important decision in the modern era, about the 700 billion package bailout within 12 hours, as Bernanke did in 2008, they would have probably plan it for weeks. Patience is valuable, but sometimes you need to decide quickly. Cheers!
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Joe Bucks
Joe_Bucks Mar 09, 2016 9:09AM ET
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Anyway - a classic W. Target $40-$42
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Mar 09, 2016 8:18AM ET
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Wow. You miss the entire concept. What the commies have done is build a Strategic Petroleum Reserve in the typical commie way: utilize the masses in enormous projects (oil storage tanks and supporting infrastructure, in this case) for the benefit of the state as a whole. No need for giant salt caverns for storage as in the USA since environmental concerns are not in the equation. And they did it at historically low cost for the commodity.
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Dave Kranzler
Dave Kranzler Mar 08, 2016 6:36PM ET
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Hahaha. If you weren't some kind of ivory tower phd head in the Keynesian clouds academic, you would understand that China is converting its dollar reserves hand over fist into gold, oil, copper and other hard assets. They can't just dump dollars and Treasuries in the open market without complete trashing the valu of their $1.2 trillion fiat dollar holdings. But they can "launder" them discreetly by converting them into goods that will be useful to them in the future. Dollars will not be useful.
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demis iliadis
demis iliadis Mar 08, 2016 12:31PM ET
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sounds like yuan future devaluation will make oil denominated in usd more expensive! as you wrote save now for the rainy/stormy days ahead
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KT Kichig
KT Kichig Mar 08, 2016 11:55AM ET
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their population is growing rapidly with huge switch towards western lifestyle consumption and climate change.
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craig smith
craig smith Mar 08, 2016 11:35AM ET
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Yes, the Chinese economy is slowing its growth, but people fail to realize this economy is still getting larger! The larger the economy the harder it is to grow faster. Why are people so obsessed with the growth rate when many many people know the Chinese economy will be larger than ours in a decade or so. Yes, the Chinese economy can be larger than the US economy soon even with a slow down in growth. Obviously, if their economy goes to zero or less, adjustments will have to be calculated, but where would our economy be if this happened? Point is, there economy will be larger than ours soon and they will need all the energy they can get!
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Joe Bucks
Joe_Bucks Mar 08, 2016 11:07AM ET
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Going back above $38!!!
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Joe Bucks
Joe_Bucks Mar 08, 2016 11:07AM ET
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Today a shocking negative API inventories build!!!
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Joe Bucks
Joe_Bucks Mar 08, 2016 11:07AM ET
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I hope you are enjoying the ride. Selling 50% @38. The rest will be taken toward 40-42 with a stop loss at 37.4.. CHEERS!!!
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Vicentiu Vancea
Vicentiu Vancea Mar 08, 2016 10:35AM ET
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Ellen, I think you already found the right answer:. "The most likely two causes of China’s increased oil demand, however, are the 5.3% jump in refining output and crude oil storage. Chinese refineries, particularly independent refineries known as “teapots,” accounted for part of the increase in crude oil imports in 2015, as the Chinese government recently allowed these refineries to purchase crude oil on the global market rather than through government contracts. It seems as though the majority of these refined products are exported rather than used domestically.". There is a reset of China's oil industry, from consuming crude oil for heating, from low value added oil products, to a superior area of refining and reselling oil products with high added value. Those meaning buying enhanced oil quantities...
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David Terry
David Terry Mar 08, 2016 10:29AM ET
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The Chinese are ahead of the curve acting as a physical trader of oil, and understand the potential profits associated with this trading. Does China need to double their reserves? No. China I placing themselves in a position to potentially profit immensely from future oil spikes, when they can provide the desired oil at a lower cost and the government receives profit on the difference in price.
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Ron Strickland
Ron Strickland Mar 08, 2016 8:51AM ET
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The lack of good reliable data from China continuously confuses me.. But I would speculate that like any investment, you buy while the instrument is low in price. The reasons for the increased oil imports are as mentioned earlier, strategic reserves, anticipation of increased demand for fuel products, but also to help relieve the Chinese government to end its fuel subsidization program. Several countries have been using low oil prices as a way to reduce their subsidies for gasoline such as Malaysia and Indonesia. For whatever reason(s), China's increased reserves gives them options for the future.
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Solomon Lalani
Solomon Mar 08, 2016 8:43AM ET
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Oil had gone to historical lows in Dec-15, and even more so in Jan-16. Chinese wouldn't mind storing cheap oil, instead of keeping their FX reserves invested in continuously low yielding US Treasuries..This is the broadest explanation that I can think of..It this is true, Chinese buying of oil (not necessarily their demand/requirement) should be low in Feb and March.
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Trevor Attema
Trev Mar 08, 2016 8:38AM ET
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Firstly, the statistics published by the Chinese government are questionable so their stated GDP claims and export statistics read whatever they want to tell the world. Where's the transparency?..I guess they're stockpiling for a rainy day to manage future supply and commercial risk. Prices have been relatively low so it makes sense to buy as much as is possible so that when prices rise, and they will, they'll have a long term competitive advantage.
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Cl Chris
Cl Chris Mar 08, 2016 8:09AM ET
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China is building strategic reserves, so that both their military and their civilian industry is well-supplied, even if the UN condemns or sanctions a possible Chinese move in the South China Sea. Typical move from a dictatorship.
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Magda Karska
Magda Karska Mar 08, 2016 7:12AM ET
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They are preparing for the collapse of US dollar to which they plan to contribute substantially.
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Orlando Oil
Orlando Oil Mar 08, 2016 7:12AM ET
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Can you expand on this? Wouldn't stockpiling oil strengthen the petrodollar?
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Magda Karska
Magda Karska Mar 08, 2016 7:12AM ET
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When the world finally realizes that the recent slowdown in US economic growth is not weather- or oil-related, the US Treasuries bubble will finally be pricked (also due to massive unloading by China). When the dollar tanks, this will positively affect oil prices (oil stockpiling will not suffice to stop the dollar from depreciating).
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Yisheng Lee
Yisheng Lee Mar 08, 2016 6:10AM ET
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GDP only 6.9%, "ONLY" how is American GDP 2-3% is vast big increase? DOuble standerd.
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raouf chaabini
raouf chaabini Mar 08, 2016 6:10AM ET
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Good evening Mr. Enrique, it's 8:54 PM right now in Montreal. Thank you for replying and reminding me some facts about the chinese government. But what gets me so astonished is the reaction of world markets to any release of economic data by the chinese government. It's taken so seriously by all the american media and especially by market traders all over the world . Take for example copper or crude oil, well, these can make huge moves ( up or down ) in the futures markets just seconds after the release of a single figure from China. I've been trading futures for over a decade , and I know what I am talking about. So how come the world markets trust those datas and react accordingly to them. They must trust them. Am I missing something. You tell me please. Thank you and MERCI.
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Jan Robins
Jan Robins Mar 08, 2016 6:10AM ET
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My thoughts exactly..
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raouf chaabini
raouf chaabini Mar 08, 2016 6:10AM ET
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HI, This is for Ms. Hellen R. Wald : I must congratulate you for the marvellous articles you write so cleverly. I just discovered them recently. I will never miss a single one of them in the future. Very smart and right to the point. I wish I had a PhD like you so, at least, I can write beautiful and cute english like you. Congratulations or BRAVO et FELICITATION. ( By the way I'm francophone, nobody is perfect as you can see ) Thank you for your time.
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harry kang
harry kang Mar 08, 2016 6:10AM ET
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Raouf, its nice that you had good experience with chinese students. But thats what they are, students who are there to learn. I am not sure how you can compare students to politics. I have lived in china for 3 years and let me tell you 1 thing, if you are kind trusting person, then china is not a good place for u to be in. They will probably sell your stuff without you even knowing. And on top of that, they are most rude people I have ever met in my life and i have been to many many countries. They only care about money and what they can get out out of you, not what they can give you in return. Its the general mentality in china.
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raouf chaabini
raouf chaabini Mar 08, 2016 6:10AM ET
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Good morning Mr. Harry, You made an excellent point there. Actually, my chinese landlord grabs the rent and never fixes anything or clean the place before renting it. Why do they adore money much more than the americans. It's their oxygene. Why not making a buck in a decent honest way. In my native country I've been taught that if you bring a dirty buck in your home, the whole misery of the world will collapse on your face. I learned something from you, Thank you, sir.
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