Strategic oil hoarding seen driving China demand in next 2 years

Strategic oil hoarding seen driving China demand in next 2 years

BLOOMBERG NEWS

SYDNEY (Bloomberg) -- Strategic stockpiling will drive China’s crude demand as the world’s second-largest oil consumer takes advantage of the lowest prices in more than five years, according to Macquarie Group Ltd.

More than half of the country’s incremental oil demand over the next two years will be related to building emergency reserves, Macquarie said in a report distributed Dec. 16. The government is filling stockpiles at three new sites with a combined capacity of about 60 MMbbl and will probably commission another 100 MMbbl of storage space at four locations, the bank estimated.

Oil has slumped about 45% this year as the Organization of Petroleum Exporting Countries sought to defend market share amid a U.S. shale boom that’s exacerbating a global supply glut. OPEC decided at a Nov. 27 meeting in Vienna to keep its output unchanged, while U.S. production has risen to 9.12 MMbopd, the most in weekly Energy Information Administration data that started in January 1983.

“China’s crude oil apparent consumption is up about 500,000 bpd,” analysts including James Hubbard in Hong Kong said in the report. “While a part of this is attributable to higher refinery runs, the other dynamic at play is the filling of crude reserves.”

Brent, the benchmark grade for half the world’s oil, will average $74/bbl next year, Macquarie predicted on Dec. 10. The front-month contract on the London-based ICE Futures Europe exchange traded below $60/bbl on Dec. 16 for the first time since July 2009. The global market will be oversupplied by 1.5 MMbopd in the first half of 2015, the bank previously said.