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

ByEllen R. Wald, Ph.D
Published 03/08/2016, 04:57 AM
Updated 07/09/2023, 06:31 AM

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.

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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.

Latest comments

surf this blog. donaldbradley.wordpress.com. nice analysis in advance of financial markets
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.
Money in China has no place to go; therefore, people who have money buy oil and gold to reduce risk. possibilities? come on yo!
I only know one thing "Chinese are cleaver people and they know what they are doing".
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!
Anyway - a classic W. Target $40-$42
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.
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.
sounds like yuan future devaluation will make oil denominated in usd more expensive! as you wrote save now for the rainy/stormy days ahead
their population is growing rapidly with huge switch towards western lifestyle consumption and climate change.
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!
Going back above $38!!!
Today a shocking negative API inventories build!!!
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!!!
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...
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.
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.
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.
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.
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.
They are preparing for the collapse of US dollar to which they plan to contribute substantially.
Can you expand on this? Wouldn't stockpiling oil strengthen the petrodollar?
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).
GDP only 6.9%, "ONLY" how is American GDP 2-3% is vast big increase? DOuble standerd.
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.
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.
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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