China has been a major demand driver in Asia, it consumes more than 10% of global crude production. China imported record 7.2 million barrels/day in December 2014.
- Slowdown in China has hit oil demands as producers across country remain pessimistic about growth prospects in time ahead. Producer prices have been declining for record 36 months at a row. Latest reading showed further slowdown by -4.8%.
Two contrarian views –
Size increase of SPR –
- China stepped up its purchase of crude since August last year, as sources say to fill the Strategic Petroleum Reserve.
- Some analysts estimate that the state is planning to raise the size of petroleum reserve to 600 million barrels which is 90 days’ worth of supply.
- According to Reuters medium estimate Current storage is about 30-40 days’ worth of supply. That leaves enough rooms for further intake.
SPR is almost full –
- According to Chinese storage executive, who wished to remain anonymous said that there may not be much spaces left in SPR.
- According to him, tanks are so full that a VLCC (very large crude container) tanker takes about 15 days to discharge the fuel.
- Chinese imports are down 5% from December peak, in spite of further fall in crude prices.
Either way, China’s demand glut is over with the fall in economic activities. SPR demand is not part of the core demand and may falter at any time depending heavily on political strategy.
Crude prices will continue to remain pressured as demand outlook is still gloomy.
The material has been provided by InstaForex Company – www.instaforex.com