China's oil stockpiles cushion global market volatility amid rising crude prices: Sparta Commodities' June Goh
Singapore, July 25
As Brent crude surged past the $100-per-barrel mark amid renewed geopolitical tensions in West Asia, China's decision to rely on its vast strategic oil reserves instead of aggressively purchasing crude has helped prevent even sharper spikes in global prices, according to June Goh, Senior Oil Market Analyst at Sparta Commodities.
Speaking to ANI, Goh said China entered the current crisis with an exceptionally strong strategic petroleum reserve position, enabling it to keep its economy running without significantly increasing purchases from the spot market.
"So China started the war in the best possible position, with very high strategic petroleum reserves on hand. I think the quota number was around 1.17 billion barrels of reserves at the start of the crisis. And that's just crude. We don't know what's in products as well," Goh noted.
According to Goh, China's preparedness has allowed it to demonstrate the effectiveness of its long-term energy security strategy while reducing pressure on already strained global oil supplies.
"They have managed to show that they don't even need to import that much in order to keep their industries running," she said, adding that China has also accelerated electric vehicle adoption and substituted some oil demand through coal-to-olefins technology and adjustments in petrochemical feedstocks.
Goh said China's restraint in the international crude market has had broader implications for global energy markets.
However, Goh believes China will eventually have to return to the market to replenish its depleted inventories, though only under favourable market conditions.
"They can still import. And by right, they should come back to import some. I believe they cannot continue like this forever," she said.
Goh noted that China briefly resumed buying crude when oil prices softened before geopolitical tensions escalated again.
"They started to show that sign... probably at the end of June... they came out to buy some crude... However, then things started to escalate... and they stopped buying again," she said.
Asked what price level could trigger sustained Chinese buying, Goh said, "It seems to be about $70 per barrel. It looks like that. And they were basically in a stockpiling phase for the last few years when oil prices were ranging between $60 and $70. So that could be the sweet spot."
With Brent crossing above $100 per barrel, it will be closely watched whether any easing in prices encourages China to return to the spot market, a move that could significantly influence global oil demand dynamics.
— ANI
Reader Comments
China is smartly using their massive reserves to cushion global volatility - but meanwhile, we're importing 85% of our oil needs and have minimal strategic storage. Our government talks about energy independence but where is the concrete action? With global tensions rising, we're extremely vulnerable. Need to accelerate EV adoption and renewable energy like China is doing.
Interesting analysis but it also shows China's economic slowdown. They have all this oil but their demand is weak because manufacturing is shifting away from China. India is now the fastest growing major economy and our oil demand is rising. We should be negotiating with Gulf nations for long-term contracts at stable prices. $100+ oil is hurting our import bill badly. 😤
While China sits on 1.17 billion barrels of reserves, India's SPR capacity is only about 39 million barrels - barely 9-10 days of consumption. At $100/barrel, the cost to build adequate reserves is huge but the cost of not having them could be catastrophic. The government needs to prioritise this urgently. We saw what happened during the Russia-Ukraine war when prices spiked.
The analyst makes a good point about China buying at $60-70 for years. But the global energy transition is real - EVs and renewables are reducing long-term oil demand. Maybe countries shouldn't be stockpiling oil long-term at all. Instead, invest that money in solar, wind, and battery storage. India has massive solar potential - let's focus on that! ☀️🌍
Honestly, China's strategic reserve strategy is a masterclass.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.