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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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Comments (18)
GD GD
GDGD Mar 11, 2016 6:01AM ET
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surf this blog. donaldbradley.wordpress.com. nice analysis in advance of financial markets
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.
Elan 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!
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".
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!
Joe Bucks
Joe_Bucks Mar 09, 2016 9:09AM ET
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145754762999432.jpg
145754762999432.jpg Anyway - a classic W. Target $40-$42
TheFraudOf WolfStreet
TheFraudOf WolfStreet 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.
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.
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
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.
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!
Joe Bucks
Joe_Bucks Mar 08, 2016 11:07AM ET
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145745318488484.jpg
Going back above $38!!!
Joe Bucks
Joe_Bucks Mar 08, 2016 11:07AM ET
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Today a shocking negative API inventories build!!!
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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