Citigroup sees China securing oil market clout as imports climb

[BEIJING] As the global oil market grapples with a price slump and a supply glut, Citigroup Inc predicts China will exert the strongest pull on the international flow of crude.

Imports by the world's largest energy user are set to increase after the government allowed smaller refiners called teapots to use overseas crude and as the nation seeks to build emergency stockpiles, analysts including Ivan Szpakowski wrote in an e-mailed report. The potential start of an oil futures contract in Shanghai will further increase the country's importance, according to Citigroup.

China regained the top spot above the US as the world's largest oil importer last month as Asia's largest economy takes advantage of the slump in crude prices to boost strategic petroleum reserves. It may solidify that position as it opens the door to the direct purchase of crude on the international market by the independent teapot plants. State-owned companies currently dominate the refining of overseas supply.

"China's oil industry is being shaken by a series of landmark reforms, which include teapot refineries being granted access to imported crude oil," Szpakowski wrote in the July 30 report. Other reforms include "crude oil futures set to become China's first financial product fully open to international investment, and the upstream sector being opened to private investment." Net crude imports are forecast to grow 7.1 per cent this year, according to the bank. China filled about 49 million barrels of strategic reserves in the first half of 2015, it said in the report.

Demand from the affected refineries are forecast to rise to 815,000 barrels a day from 359,000 barrels a day by the end of 2015 as imported fuel oil and bitumen are displaced, and as they raise utilization rates, according to Citigroup. China may become a net exporter of petroleum products in 2016 for first time in more than a decade, the bank said.

BLOOMBERG